Middle East Bunker ConferenceDubai March 16th 2016

Chris TurnerGroup Technical Manager

Cockett Marine Oil Group | www.cockettgroup.com Tel: +971 4 4255 100 (Bunkers) | Fax: +971 4 4255 111 | Email: dubai@cockett.com

Established in 1979 to provide an independent specialist marine fuel service to the shipping industry.

Today we are owned 50% by Vitol and 50% by Grindrod.

www.grindrod.co.zawww.vitol.com

Cockett Marine Oil is one of the World’s top reseller’s of bunkers and maritime lubricants, supplying approx. 8 million tons of

bunkers per annum, with a turnover In excess of US $2 billion

How will the Middle East cope with the onset of the Global Bunkering Cap ?

The Challenge Ahead for the Middle East

• Background

• Current Position

• Requirements

• Options & Alternatives

• Conclusions

Global Picture

Source : OPEC World Oil Outlook 2015 / IAE

• Marpol Annex VI Regulation 14 (SOx)

• Review requested to be initiated by 1st Sept 15

• View to report at MEPC 70, Autumn 2016

• Industry waiting with baited breath as to outcome of Fuel study

• Tug of war between Political and Technical as to implementation date – 2020 ?

• Significant investment required for Hydrocracking, Coking and Desulphurization units

• Required estimated HFO conversion of approximately 2.2-2.6 mb/d worldwide assuming low uptake in Scrubbers and 20% non Compliance

• Moving target depending on commissioning of scrubbing & non compliance

ME Current Qualities• ME Crude Oil “Sour” and Heavy with

large residual fraction

• Sulphur concentrates into heavier fractions during conventional distillation processes

• Processing of Sour Crudes correlates with qualities obtained locally Iranian

Heavy1.8%

BasrahLight2.9%

OmanBlend2.0%

Arab Light 1.09%Arab Medium 2.59%Arab Heavy 2.87%

Jeddah3.3%SHFO

Fuj3.0%HFO

Typical Middle East Qualities

• Compliant MGO or AGO available in main ports (0.05% -0.1% S)

• Some ports MGO exceed 0.50% S

• HFO Sulphur Content higher than 0.5%

Fuj MGO0.10 %

JeddahMGO0.7-0.9 %

RastanuraMGO<0.05 %

Source : OPEC World Oil Outlook 2015 / Veritas Petroleum Services

Using Fujairah / Khorfakkan as an example :

Fujairah & KFK is estimated to be ~75 % of the bunker

market in the ME

11 Mn MT p/a ~ 190k bbls/d HFO will not meet

Global Cap

15 Mn MT p/a ~ 250k bbls/d across the ME

Significant Supply Chain changes will have to occur

in the Middle East

How will the Industry Adapt ?

ME Options & Alternatives

• Use existing and projected Distillate Pool of AGO / MGO ?

• 400-500k b/d surplus of Distillate in the Region by 2020

• Inevitable slippage of refinery upgrading projects should not prevent avails.

• ‘’Pockets” of unavailability of compliant Distillates

• Flash Point generally SOLAS compliant but seen to be close to specs

• Qualities generally good. *Care always with cold flow if future operation in colder climes

• Stowage & Housekeeping on board will come under renewed scrutiny

Source : OPEC World Oil Outlook 2015

ME Options & Alternatives

• Refinery Upgrades– Globally the Middle East is very

active with only China expected to increase conversion capacity more in run up to 2020 globally

– Estimated 0.5 mb/d Conversion capacity to be added

– Estimated 0.7mb/d Desulphurization capacity to be added in ME by 1st Jan 2020

– Influence of Iran cannot be underestimated

2016 200 kb/d

2019 425 kb/d

2017 0 kb/d*

2018 50 kb/d

+

++

+-

+

+

+

+

+++

+Looking Further Ahead

2020/1- 933 kb/d

+

+

+

+

+

+

– Further 0.9 mb/d desulphurization capacity to be added in ME during 2020 & 2021

– Caveats……..

Source : OPEC World Oil Outlook 2015 / IAE

So its Possible….?

CAUTION

– ME is predominantly an Export Market

– Desulphurization additions also include Gasoline (EU5)

– Marine (as always) will be last to benefit from Desulphurization in Refineries

BUT

– Good News is we (ME) do have a projected Surplus

– Potentially much more competitive as a region – No Freight / Importing

DON’T FORGET

– A Truly GLOBAL cap…

– Be in no doubt NOT same picture globally

– Generally acknowledged a major challenge if 2020 occurs with significant tightness of product expected.

Source : OPEC World Oil Outlook 2015

Options and Alternatives

Question : Will we simply blend existing HFO ?

• Complex Blending

• Limited economical blending component

• Quality Issues, Unstable fuels

• “As is” Residual barrels are largely not usable

• Little or no possibility of safely blending existing HFO with suitable economic blendstocks

• Confidence that distillate will assume main role in Bunkering

• ME distillate Surplus and incoming Refinery upgrades investment make this possible

• Pockets of unavailability but in general ME region is swimming with compliant Distillate

• Opportunities to grow market share with competitive prices

• Drivers out of the control of this audience

• Watch this space…..

Middle East Conclusions

Thank you

Cockett Marine Oil Group | www.cockettgroup.com Tel: +971 4 4255 100 (Bunkers)| Fax: +971 4 4255 111 | Email: dubai@cockett.com