1

Petroleum Economics Petroleum Economics

by by
Dr.Thitisak Dr.Thitisak Boonpramote Boonpramote
Department of Mining and Petroleum Engineering Department of Mining and Petroleum Engineering
Chulalongkorn Chulalongkorn University University
Crude Oil Pricing Crude Oil Pricing
2
What What is the is the current crude oil prices? current crude oil prices?
A. The price people will pay
B. WTI & Brent
C. What the pricing services say
D. Cost of production plus margin
Answer: A, B & C Definitely NOT D!
So E&P profitability depend on high oil prices at
low production costs
Full cost of producing one barrel of oil equivalent Full cost of producing one barrel of oil equivalent
(source: (source: www.amec.com www.amec.com in 2005) in 2005)
Reserves,
bln.bbl
* - finding, development and production
excl. transportation and taxes (CERA)
100
16
12
8
4
200 300 400 500 600 700
$/bbl
Iraq Iran Saudi Arabia UAE
USA,
stripper wells
Western
Siberia
Venezuela(x-heavy)
Other Latin America
Nigeria
Algeria
Brasil
North Sea
Western Canada
Mexico
China (onshore)
Indonesia
USA, Mexican Gulf (deep)
USA, Alaska
USA onshore
Angola
Kazakhstan
Russia
Other
800
Best
Companies**
** - 2001 finding, development and production cost 3.7 $/bbl,
Including Government expenses
Venezuela(conv)
Kuwait
3
History of Crude History of Crude Oil Oil Pric Pricing ing Systems Systems
Posted prices Posted prices : 1945-1970
Set by oil companies (cost plus margin)
OSPs OSPs (Official Selling Prices) (Official Selling Prices) : 1970-Present
Set by governments and NOCs
Netbacks Netbacks : 1985-1986
Based on product values
Benchmark Pricing Benchmark Pricing ( (Spot market Spot market- -linked): linked): 1986-Present
Set by clearing markets and pricing services
Marker Crude for 3 Regional Markets Marker Crude for 3 Regional Markets
4
Benchmarks act as a barometer of outright values
Used as a reference price reference price
Often used to price other grades:
For example, Oman/Dubai used to price oil from
Saudi Arabia, Iran, Kuwait, UAE etc.
Differentials Differentials are negotiated off benchmark price
Benchmark does not change physical value
Responsive to supply/demand fundamentals
Use of Benchmarks in Pricing Use of Benchmarks in Pricing
Criteria for benchmarks Criteria for benchmarks
Production volume
Open trade free of bottlenecks
Fungible quality
Wide equity and customer base
Market liquidity
Price Transparency
Market forces Market forces
determine price
Price cannot be
dictated by any
single party
5
Brent
WTI
Dubai
Benchmark
Active, many
contracts
IPE Brent
Successful
Europe
Active, linked to
futures
NYMEX sweet
very successful
US
Active, many
contracts
Limited role to date
but DME startup
due May 1, 2007
Asia
Swaps Futures Region
The Traditional Benchmarks The Traditional Benchmarks
WTI
WTI
BRENT
BRENT
DUBAI
OMAN
TAPIS
WTI (West Texas Intermediate): North & South America
Dubai / Oman: Middle East
Brent: Europe & Africa
Tapis: Far East
Marker Crude / Marker Crude / Benchmark Benchmark Crude Crude
6
The Americas The Americas West Texas Intermediate (WTI) West Texas Intermediate (WTI)
Europe/Asia Europe/Asia
International Petroleum Exchange (IPE) linked International Petroleum Exchange (IPE) linked
7
Arabian Gulf (AG) Arabian Gulf (AG) Exports to Asia Exports to Asia
Other Asian Marker Crudes Other Asian Marker Crudes
8
Benchmark Pricing Mechanism Benchmark Pricing Mechanism Benchmark Pricing Mechanism
FUNDAMETALS FUNDAMETALS
A A. . PRODUCTION PRODUCTION/ /DRILLING DRILLING - - OPEC OPEC
- - NON NON- -OPEC OPEC
B B. . CRUDE RUN CRUDE RUN
C C. . CRUDE STOCK CRUDE STOCK
D D. . REFINING OPERATION REFINING OPERATION
E E. . END END- -USER DEMAND USER DEMAND- -GDP GDP
F F. . PRODUCT STOCK PRODUCT STOCK
PROCEDURE YIELD PROCEDURE YIELD
ACCESSMENTS ACCESSMENTS
REFINERY ECONOMIC REFINERY ECONOMIC
ACCESSMENT ACCESSMENT
PRICING ACCESSMENT PRICING ACCESSMENT
AGENTCY AGENTCY
PLATT PLATT S S, , ARGUS ARGUS, , APPI APPI
OTC OTC
PRICE SWAP PRICE SWAP, , FORWARD FORWARD
TRANSECTION TRANSECTION
( (OTHER FINANCIAL OTHER FINANCIAL
DERIVATIVE DERIVATIVE
TRANSECTION TRANSECTION) )
FUTURE MARKET FUTURE MARKET
NEW YORK NEW YORK
NYMEX NYMEX
LONDON LONDON
IPE IPE
DERIVATIVE DERIVATIVE
TRADERS TRADERS
SPECULATORS SPECULATORS
BENCHMARK CRUDE BENCHMARK CRUDE QUALITY ADJ QUALITY ADJ. . PREMIUM PREMIUM / /
DISCOUNT DISCOUNT
PRODUCT PRICE ACCESSMENT PRODUCT PRICE ACCESSMENT
AGAINT YIELD OF CRUDE AGAINT YIELD OF CRUDE
PHYSICAL PHYSICAL
TRADERS TRADERS
TECHNICAL PRICE MOVEMENT TECHNICAL PRICE MOVEMENT
ANALYSIS ANALYSIS
MARKET PARTICIPANTS PHYCOLOGY MARKET PARTICIPANTS PHYCOLOGY
( (MARKET INTEREST MARKET INTEREST) ) - - SPECULATORS SPECULATORS
OTHER OTHER - - COMMODITIES TRADE COMMODITIES TRADE
MARKET MARKET
WTI, BRENT
DUBAI
Buy
Buy
Sale
Sale Price =
Issues Concern : We still do not know the exact price in advance (@ deal done).
Publication Spot
Accessment
- Platts
- Argus
- APPI
Publication Spot Publication Spot
Accessment Accessment
- - Platt Platt s s
- - Argus Argus
- - APPI APPI
Benchmark Price + Quality Adjustment
Key Characteristics of Benchmark Crude
Deep, liquid markets
Aggregate spot demand/supply of a region
Freely Traded No government intervene
High degree of transparency
Assessment methodology is clearly defined
Market Relate Price Structure Market Relate Price Structure
9
Crude Oil Price Formula Crude Oil Price Formula
Price Adjustment Factors Price Adjustment Factors
10
PHYSICAL CRUDE HILIGHTS PHYSICAL CRUDE HILIGHTS
SORCES OF SUPPLY SORCES OF SUPPLY
QUANTITIES QUANTITIES
QUALITIES QUALITIES
TYPE OF CRUDE TYPE OF CRUDE
LOGISTICS LOGISTICS
EXPORT TERMINAL EXPORT TERMINAL
TANKERS TANKERS
PIPELINES PIPELINES
REFINERIES REFINERIES
TYPE TYPE/ /COMPLEXITY COMPLEXITY
CAPACITY CAPACITY
LOCATION LOCATION
Physical Crude Physical Crude O Oil il
Some basic Terminology Some basic Terminology
Light
Heavy
Sweet
Sour
Light ends
Middle
distillates
Residues
Density
API gravity
SG
Sulfur
% weight
ppm
Clean or white
products
Moved in clean
tankers
Dark or black
products
Moved in dirty
tankers
CRUDE
11
Crude Oil - Physical Crude Oil Crude Oil - - Physical Physical
DETAILED ASSAYS DETAILED ASSAYS
YIELDS YIELDS, , QUALITIES QUALITIES
THEIR PRODUCTION THEIR PRODUCTION
QUANTITY QUANTITY
LOGISTIC POSITIONS LOGISTIC POSITIONS
HOW TO TRANSPORT HOW TO TRANSPORT
HOW TO MARKETING HOW TO MARKETING
PRICING MECHANISM PRICING MECHANISM
Fuel Fuel
Oil Oil
Diesel Diesel
Diesel Diesel
LPG LPG
LPG LPG
LPG LPG
Kerosene Kerosene
Heavy Heavy
Naphtha Naphtha
Heavy Heavy
Naphtha Naphtha
Light Light
Naphtha Naphtha
Kerosene Kerosene
MAIN ISSUES MAIN ISSUES
Not all crude oil was made alike Not all crude oil was made alike
The Crude Oil Constellation
Cabinda
Iranian Heavy
Urals
Vasconia
Marlim
Oman
Dubai
Iranian Light
Bonny Light
BRENT
WTI
Daqing
Basrah
ANS
0
0.5
1
1.5
2
2.5
20 25 30 35 40 45
Light Heavy
S
o
u
r





























































S
w
e
e
t
12
0.03 46.0 Malaysia Tapis
1.20 34.0 Oman Oman
1.90 30.7 United Arab
Emirates
Dubai
0.40 38.5 North Sea
3
Brent
0.30 38-40 USA WTI
Sulfur
2
(wt.%)
API Gravity
1
Source Crude Oil Name
1
API Gravity > 38 = light crude
API Gravity 22-28 = medium crude
API Gravity < 22 = heavy crude
2
Sulfur < 0.5% = sweet crude
> 0.5% = sour crude
3
North Sea = Norway, UK, Denmark, The Netherlands, Germany
Light/Heavy: API Gravity Light/Heavy: API Gravity
Light vs. Heavy Crude Light vs. Heavy Crude
Light Texas Crude
Palo Pinto Field
North Texas
Light Texas Crude
Palo Pinto Field
North Texas
Heavy Texas Crude
Humble Oil Field
Southwest Texas
Heavy Texas Crude
Humble Oil Field
Southwest Texas
13
Selected Crude Oil Property Selected Crude Oil Property

( ( . . ) )
Petrocorp Petrocorp
( ( , ,
. . ) )
BP BP ( ( . . ) )
PHET PHET
( (
. . ) )
North Central North Central
( ( . . ) )
, ,
( (Chevron Chevron) )
( (Unocal Unocal) )
Thai Crude Oil Fields Thai Crude Oil Fields
(before M&A of oil companies) (before M&A of oil companies)
14
Some Thai Petroleum API Gravity Some Thai Petroleum API Gravity
+6 +12 91 68 62 50 DUBAI
+7 +11 96 73 66 55 BRENT
+6 +9 97 72 66 57 WTI
Annual
Change
2006/07
Annual
Change
2005/06
Average
Jan 2008
Average
2007
Average
2006
Average
2005
Crude
Benchmark Prices Highlight ( Benchmark Prices Highlight ($/BBL) $/BBL)
15
Marker Crude Price Differential Marker Crude Price Differential
Profile of Crude Price Formula Profile of Crude Price Formula Profile of Crude Price Formula
EXAMPLE EXAMPLE
1. 1. SAUDI ARABIA SAUDI ARABIA
2. 2. KUWAIT KUWAIT
3. 3. IRAQ IRAQ
4. 4. NIGERIA NIGERIA
5. 5. MEXICO MEXICO
6. 6. EQUADOR EQUADOR
7. 7. YEMEN YEMEN
FROM FROM TO UNITED STATES TO UNITED STATES TO EUROPE TO EUROPE TO ASIA TO ASIA
WTI WTI+ +ADJ ADJ. . FACTORS FACTORS
WTI WTI+ +ADJ ADJ. . FACTORS FACTORS
ANS ANS+ +ADJ ADJ. . FACTORS FACTORS
BRENT BRENT+ +ADJ ADJ. . FACTORS FACTORS
0.30 0.30 ( (WTS WTS+ +LLS LLS)+ )+
0.20 0.20 ( (ANS ANS+ +DB DB) )
ANS ANS + + ADJ ADJ. . FACTORS FACTORS
N N. .A A
BRENT BRENT+ +ADJ ADJ. . FACTORS FACTORS
BRENT BRENT+ +ADJ ADJ. . FACTORS FACTORS
BRENT BRENT+ +ADJ ADJ. . FACTORS FACTORS
BRENT BRENT+ +ADJ ADJ. . FACTORS FACTORS
0.80 0.80 DB DB+0.13 +0.13 HSFO HSFO
180, 180, 3.5% 3.5%S S
N N. .A A
N N. .A A
( (OM OM+ +DB DB)/2+ )/2+ADJ ADJ. . FACTORS FACTORS
( (OM OM+ +DB DB)/2+ )/2+ADJ ADJ. . FACTORS FACTORS
( (OM OM+ +DB DB)/2+ )/2+ADJ ADJ. . FACTORS FACTORS
BRENT BRENT + +ADJ ADJ. . FACTORS FACTORS
( (OM OM+ +DB DB)/2+ )/2+ADJ ADJ. . FACTORS FACTORS
N N. .A A
BRENT BRENT + + ADJ ADJ. . FACTORS FACTORS
16
Oil Dependency Factors
2002
Oil Oil Dependency Dependency Factors Factors
2002 2002
USA
Total Import : 11,357 KBD
Europe
Total Import: 11,895 KBD
China
Total Import: 2,042 KBD
J apan
Total Import : 5,070 KBD
Other Asia Pacific
Total Import : 8,622 KBD
USA
Europe
Asia
China
ME
S.+centralAmerica
Europe
FSU
North America
Asia
Africa
others
20%
36% 10%
2%
17%
12%
2%
1% 27%
4%
36%
2%
1%
9%
21%
38%
1%
8 % 32%
16%
1% 4%
78%
2%
15% 1% 4%
75%
2%
1%
1%
12%
9%
10%
2%
Where Asia gets its crude Where Asia gets its crude
17
Persian Gulf Imports Persian Gulf Imports
(as a Percent of Total Oil Demand) (as a Percent of Total Oil Demand)
North America North America
12% 12%
Europe 19% Europe 19%
Asia 46% Asia 46%
U.S. Dept. of Energy, Energy Information
Administration: International Energy Outlook 2004
18
Middle East crude qualities Middle East crude qualities
Crude Oil Price: Asian Premium Crude Oil Price: Asian Premium

19
FOB
price at
source
+ Transport
+ Insurance
+ Import duty
+ Loss
CIF
(delivered)
cost
FOB
price at
source
Benchmark
crude price
= +
Premium
Quality Adj
Mkt premium
Benchmark Crude
Dubai
Tapis
Related Crude
Oman, Arab Light
Tapis, Seria Light
1/
2/
Remark
1/ average Spot on delivery month by PLATT
2/ average Spot on delivery month by APPI
Thai Imported Crude Price Thai Imported Crude Price Thai Imported Crude Price
VOL VOL., ., KBD KBD
%ON IMPORTED %ON IMPORTED
TOTAL TOTAL
PRICING FORMULA PRICING FORMULA
IMPORTED CRUDE OIL IMPORTED CRUDE OIL : : 3,978.8 3,978.8 ML ML, , 834.2 834.2 KBD KBD ( (April April 04) 04)
@FAR EAST @FAR EAST(391.7 (391.7 ML ML,82.1 ,82.1KBD KBD) )
21.0 21.0
20.4 20.4
11.7 11.7
10.6 10.6
2.5 2.5
2.4 2.4
1.4 1.4
1.3 1.3
TAPIS TAPIS + + ADJ ADJ. . FACTORS FACTORS
TAPIS TAPIS + + ADJ ADJ. . FACTORS FACTORS
TAPIS TAPIS + + ADJ ADJ. . FACTORS FACTORS
TAPIS TAPIS + + ADJ ADJ. . FACTORS FACTORS
- - LABUAN LABUAN, , MALAYSIA MALAYSIA
- - DULANG DULANG, , MALAYSIA MALAYSIA
- - CHAMPION CHAMPION, , BRUNAI BRUNAI
- - SERIA LIGHT SERIA LIGHT, , BRUNAI BRUNAI
@ MIDDLE EAST @ MIDDLE EAST (3,423.1 (3,423.1 ML ML,717.7 ,717.7 KBD KBD) )
142.1 142.1
132.7 132.7
100.3 100.3
99.7 99.7
17.0 17.0
15.9 15.9
12.0 12.0
12.0 12.0
DUBAI DUBAI + + ADJ ADJ. . FACTORS FACTORS
BRENT BRENT + + ADJ ADJ. . FACTORS FACTORS
DUBAI DUBAI + + ADJ ADJ. . FACTORS FACTORS
( (OMAN OMAN + + DUBAI DUBAI)/ 2 )/ 2 + +
ADJ ADJ. . FACTORS FACTORS
- - OMAN OMAN, , OMAN OMAN
- - MASILA MASILA, , YEMEN YEMEN
- - MURBAN MURBAN, , UAE UAE
- - ARAB EXTRA LIGHT ARAB EXTRA LIGHT, ,
SAUDI ARABIA SAUDI ARABIA
21.2 21.2
17.4 17.4
40.8 40.8
33.5 33.5
TAPIS TAPIS + + ADJ ADJ. . FACTORS FACTORS
( (OMAN OMAN+ +MINAS MINAS+ +ADJUNA ADJUNA)/ 3 )/ 3
+ ADJ. FACTORS + ADJ. FACTORS
- - PATTANI PATTANI
- - PHET PHET
DOMESTIC CRUDE OIL DOMESTIC CRUDE OIL : : 247.4 247.4 ML ML, , 51.9 51.9 KBD KBD ( (April April 04) 04)
Thai Crude Price Thai Crude Price Thai Crude Price
SOURCE SOURCE : : MINISTRY OF ENERGY MINISTRY OF ENERGY ( (APRIL REPORT APRIL REPORT) )
20
Middle Eastern Crude Oil Pricing Middle Eastern Crude Oil Pricing
Netback Value Netback Value
21
Derived Demand of Crude Oil Derived Demand of Crude Oil
Petroleum Products Petroleum Products
Gasoline Gasoline - - 19.5 gallons 19.5 gallons
A Barrel of Crude Oil Provides:
Fuel Oil Fuel Oil - - 9.2 gallons 9.2 gallons
Jet Fuel Jet Fuel - - 4.1 gallons 4.1 gallons
Asphalt Asphalt - - 2.3 gallons 2.3 gallons
Kerosene Kerosene - - 0.2 gallons 0.2 gallons
Lubricants Lubricants - - 0.5 gallons 0.5 gallons
Petrochemicals, Petrochemicals,
other products other products - - 6.2 gallons 6.2 gallons
One Barrel = One Barrel =
42 gallons 42 gallons
American Petroleum Institute, 1999 American Petroleum Institute, 1999
22
Crude Crude- -Product Flow Diagram Product Flow Diagram
Oil Business Loop Oil Business Loop
23
Selected Crude Oils Distillation Yield Selected Crude Oils Distillation Yield
Net Back Value Net Back Value
24
Product Revenue @BKK
Crude Cost
Gross Refining Margin
US$/ BBL
X
Y
X - Y
X = (Ex- refinery price@BKK of product i) x (Yield of product i)
Y = (CIF crude cost@ SRC of crude i) x (Slate of crude i)
Gross Refining Margin (GRM) Gross Gross Refining Refining Margin Margin (GRM) (GRM)
Reserve Cost
Transhipment Cost to
BKK
Agreed Oil Loss
(SPore-Thailand)
Insurance Premium
Transportation Cost
(SPore-Sriracha @
Agreed Cargo Size)
Quality Adjustment to
Thai Specs
SPore Spot Price
= Deem Import Parity Concept (Lowest Cost) = Crude Cost Related
@ Singapore
= Agreed amount : Refiners vs Marketers
= Deem Import Parity Concept (Lowest Cost) = Crude Cost Related
@ Singapore
= Agreed amount : Refiners vs Marketers
Ex- refinery price@ BKK
(Mean of platt daily assessment)
Product Price Benchmark @ SPore
(3 Day around B/L)
Agreed Oil Loss (0.5%)
Insurance(0.084% C&F)
F
C
CIF
Import Duty
Ex Ex- -Refinery Pricing Pattern Refinery Pricing Pattern
25
-
Contract Petromin
C3/C4 (cp)
LPG
Typical Size
: Minimum 50,000 BBL/Cargo
Loading Location
: 5 Day period FOB SPore
Price Assessment
: Reflect the pricing of product for 15-30
Days ahead
Unleaded 95 Ron
(Mean of Platt =
MOP)
ULG 95
ULR 91
Gasohol 95
Gasohol 91
Basis (Daily Assessment)
Benchmark
Assessment
Products
Benchmark Market Product Pricing Benchmark Market Product Pricing
Typical Size
: 20,000 MT/Cargo
Loading Location
: 5 Day period FOB SPore
Price Assessment
: Reflect the pricing of product for 15-30
Days ahead
High Sulfur Fuel Oil
3.5%s (HSFO 3.5%s)
(Mean of Platt = MOP)
Fuel Oil
Typical Size
: 150,000 BBL/Cargo
Loading Location
: 5 Day period FOB SPore
Price Assessment
: Reflect the pricing of product for 15-30
Days ahead
Gasoil 0.5%s
(Mean of Platt = MOP)
Diesel
Diesel B5
Basis (Daily Assessment)
Benchmark
Assessment
Products
Benchmark Market Product Pricing Benchmark Market Product Pricing
26
GRM & MKM GRM & MKM
GRM = Spread between crude & products
MKM = Spread between retail price &
ex. Refinery price
GRM Example GRM Example
27
Crude
cost
(CIF)
Variable
cost
Utilities
Catalyst
Chemicals
etc.
Revenues
=
(Distillate yield) x
(distillate price)
(Fuel oil yield) x
(fuel oil price)
(Gasoline yield) x
(gasoline price)
(Other) x
(price)
GRM
Total
cost
Fixed
cost
Fixed cost
Salary & Wage
Outside Contractor
Turnaround & Inspection
Overhead
Depre./ Amortiz.
Financial expense
Net Profit
Refining Economics Refining Economics Refining Economics
Production Pattern of Thai Refineries Production Pattern of Thai Refineries
(PTIT, 2004) (PTIT, 2004)
28
Thailand Weighted Average GRM Thailand Weighted Average GRM
Thailand Supply/Demand Forecast Thailand Supply/Demand Forecast
KBD KBD
29
Thailand Demand & Supply Balance Thailand Demand & Supply Balance
Regional oil refining margins Regional oil refining margins
30
More Refining Capacity More Refining Capacity
World Oil Refining Additions
Planned and Announced New Capacity 2006-2012 (bpd)
2
0
0
,
0
0
0
1
,
6
3
9
,
0
0
0
1
,
6
4
9
,
5
0
0
1
,
7
9
0
,
0
0
0
3
,
6
0
0
,
0
0
0
5
,
1
5
5
,
0
0
0
1
,
5
4
6
,
0
0
0
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2006 2007 2008 2009 2010 2011 2012
31
MBD MBD
Asia Pacific Oil Refining Capacity & Demand Growth Asia Pacific Oil Refining Capacity & Demand Growth
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011
Asic Pacific Capacity Additional Capacity Demand 1% Demand 2% Demand 3%
Source : Reuters, Platts, MS ,GS as of 07 Sep. 2007
Depends on Growth, the surplus might be in 2010 onwards.
Location of planned new refining capacity Location of planned new refining capacity
C h i n a
3 6 %
T a i w a n
6 %
M i d d l e E a s t
1 8 %
U S A
2 %
O t h e r
2 1 %
I n d i a
1 7 %
Most of planned new refining capacity is in strong demand growth locations.
Question-marks remain, however, over what percentage of projects will
actually be implemented
32
GRM Forecast GRM Forecast
$/BBL
Decreasing trend due to new regional refinery capacity
Petroleum Product Supply Affected By Numerous Factors Petroleum Product Supply Affected By Numerous Factors
Changing Product
Specifications
Changing Feed
Quality
Capacity Changes Petroleum Refined
Product Supply
Technology
Imports
33
Clean Fuel Parameters Clean Fuel Parameters
Gasoline
Sulfur
Aromatics
Olefins
Europe
Auto Oil Program
National regulations
Gasoline
Oxygenates
Additives
RVP
Sulfur
United States
Clean Air Act
Federal regulations
Gasoline
Sulfur
Aromatics
RVP
Oxygenates
Asia
National regulations
Diesel
Sulfur
Aromatics
Biofuel content
Diesel
Sulfur
Alternative fuels
Vehicle fleet changes
Diesel
Sulfur
Polyaromatics
Cetane, SG, distillation
Biofuel content
Alternative fuels
Vehicle fleet changes
Alternative fuels
Vehicle fleet changes
European specification changes European specification changes
Gasoline set to 50 ppm max sulfur from January 1, 2005
Aromatics limit in gasoline lowered to 35 max same date
Jet fuel sulfur tightened under Defstan 91/91 issue 5
Diesel moved to 50 ppm max sulfur from January 1, 2005
Diesel10 ppm max sulfur targeted across EU by 2009
Sulfur in gasoil to be reduced to 0.1% (1000 ppm) from 0.2% (2000 ppm)
from January 1, 2008
34
Fuel Specifications Tighten Fuel Specifications Tighten
2000
2000
50/10
50/10
2007
1000
2000
50/10
50/10
2008
1000 2000 2000 2000 Gasoil
2000 2000 3000 3000 Jet kero
10 50/10 50/10 350 Diesel
10 50/10 50/10 150 Gasoline
2009 2006 2005 2000 Product
The table shows maximum level of sulfur in parts per million (ppm)
allowed in fuels within the European Union in the period 2000-
2009. Fuel qualities are set to tighten substantially during this
period.
US specification changes US specification changes
Gasoline moved to 30 ppm maximum sulfur from January 1, 2005
This was phased in by allowing sulfur credits against progressively tighter
limits on average sulfur over year; sulfur credits accrued in one year allowed
as offset against next year, allowing a phased approach rather than big
bang
Corporate pool average reduced from 120 ppm in 2004 to 90 ppm in 2005
to 30 ppm in 2006; Maximum 300 ppm level for individual batches reduced
to 80 ppm from January 1, 2006
Oxygenates in gasoline in US have been replaced by ethanol after liability
waivers were removed
Sulfur limits in diesel also being tightened
Diesel scheduled for move to 15 ppm maximum sulfur from middle of 2006;
with various extensions allowed (temporary limit of 22 ppm through fall
2006)
No changes in bunker fuel qualities
35
Sulfur quality in diesel assessments Sulfur quality in diesel assessments
Increasing activity on physical for 0.25%S, 0.05%S and 0.005%S grades
0.5% Sulfur remains benchmark grade in Asia
Australian, NZ move to 50ppm supportive of 0.005%S swaps
market
Liquidity on 0.005% should increase as region migrates to lower
sulfur specifications
Sulfur Sulfur spreads spreads
36
Quality differentials Quality differentials