CAIAsia Oil Industry Dialogue for Cleaner Fuels in Asia

1
CAI-Asia Oil Industry Dialogue forCleaner
Fuels in Asia
Cornie HuizengaGrant BoyleJohn CourtisMichael
Walsh
Better Air Quality (BAQ) 2004 6-8 December,
2004 Agra, India
2
Overview of Oil Dialogue

• Goal To contribute to better air quality
  management in Asia by following a structured and
  scientific approach in the identification of fuel
  quality improvement and associated improvement in
  vehicle technology and other directly related
  measures
• Participants Launch meeting in Singapore on 21
  July 2003 included Bangchak Petroleum Public
  Company, BP, ChevronTexaco, ExxonMobil, Indian
  Oil Corporation, Pakistan State Oil, Petron
  Corporation, PTT Public Company Ltd, Shell, Showa
  Shell Sekiyu K. K., Singapore Petroleum Company,
  Thai Oil Company Limited.
• ToR Adoption of Singapore statement kicked of
  the Dialogue (http//www.cleanairnet.org/caiasia/1
  412/articles-58710_singapore.pdf). This was
  followed by the formulation of the detailed ToR.
• Components Three background papers under
  preparation
• Relationship Fuels and Vehicles
• Costs of Producing Cleaner Fuels
• Incentives for the adoption of Cleaner Fuels

3
Context Summary

• Asia as a region has the fastest vehicle growth
  rates in the world. Variable growth rates by
  country and by technology
• Characteristics of the vehicle fleet in Asia are
  unique high percentage of 2-3 wheelers modified
  vehicles and high average lifetime of vehicles
  and low capital cost of in-use vehicles
• Considering existing and currently planned
  emission standards majority of vehicles in Asia
  in 2010 will still be less than Euro 2
  equivalent.
• Cleaner fuels will have direct impact on
  emissions from both new vehicles and existing
  in-use vehicles

4
Gasoline Effects on Emissions
Emissions
Toxics (Unregulated )
Regulated
Fuel-
change
CO
HC
NOx
Benzene
Aldehyde
Butadiene
Reduction of

o
o
o
o
o
Benzene
---
---
-
-



Aromatics

o
o
o
o
o
Olefins



o
o
o
Sulphur
/
o
o
Vapor pressure
o
o
o
o
-



Distillation Characteristics
?
?
--


o

o
Addition Oxygenates
2-10 10-20 gt 20
Improvement or Deterioration

0

- -- ---
?
2
5
Diesel-Fuel Effects on Emissions
Vehicle - Emissions LDV / HDV
Diesel fuel-change
CO
HC
NOx
Particulates
Reduction of
/
o
o
? / o
Sulphur
--
/
/-
/

/o
o
Density
-
-

/
/
/


o
o
Aromatics
-
- -
-
-
/
/

o
o
/
o
/
Back End Distillation (T95)
Increase of ...
-
/
/
/
o
o
Cetane Number
2-10 10-20 gt 20
Improvement or Deterioration

0

- -- ---
?
2
6
Control Devices, Emission reduction potential and
effects of sulfur on catalyst performance ()
Note CAI-Asia, a work in progress (not to be
quoted)
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The Asian Refining Industry

• Significant number of small refineries
• Even the complex refineries in the Asian region
  are not well equipped to produce clean fuels
• Significant capital investments are required
• Amongst the most critical parameters are sulfur,
  benzene, and aromatics.

8
Costs of Production

• Preliminary review of cost studies to determine
  the applicability of cost estimates to Asia
• Comparison of refinery data for Asia with data
  from other countries to assess applicability

10.4
-
11.3

----



9
Potential Options for Implementation of Clean
Fuels

• Option A Follow an integrated strategy and
  regulate all fuel properties at the same time
• optimum strategy takes full advantage of
  refinery integration
• requires larger capital investment all air
  quality benefits materialized
• Option B Implement some fuel quality standards
  first and follow later with more comprehensive
  standards
• depends upon the time for implementation of
  vehicle standards
• requires less capital investments in the short
  term
• sub-optimum strategy more costly in the long
  term
• some air quality benefits will be delayed
• Option C Limited introduction of fuel quality
  standards in cities and regions where air quality
  is an issue different standards for the
  remainder of the country.
• depends upon the ability to monitor compliance
  possible enforcement and fuel adulteration issues
• reduces the costs of compliance increases the
  costs for fuel segregation
• potential for the quality of fuels in the
  uncontrolled areas to deteriorate

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Implementation Time-Frame

• USA and EU issued regulations, which gave 4-7
  years for the introduction of cleaner fuels,
  which was feasible
• For Asian countries implementation time of 4-6
  years can be considered for planning purposes,
  whereby
• 2 years permitting, engineering, financing
• 2-4 years construction (includes contingencies)
• However there will be location specific factors
  that will influence timing
• Ability to raise capital and to finance capital
  investments
• Growth in demand for transportation fuels
• Availability of trained labour, engineering
  services
• Avoidance of risks in supply disruptions
• Ability of the marketing and distribution system
  to adjust
• Ability of the government to make, where relevant
  decisions on future of small scale refineries
• Flexibility granted by regulators to refiners
• Availability of merchant export refiners in the
  region to meet shortfall in local production.
• NOT ALL COUNTRIES WILL OPERATE WITH SAME
  TIMEFRAMES

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Implementation Strategies for Fuel Quality
Improvements
12
Tax and Pricing Differentials in Asia
Unleaded Gasoline
Lower Sulfur Diesel
13
Market Orientation
(EIA, 2004)
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Incentives and taxation versus command and control

• Taxation and Incentives can complement fuel
  quality regulations but not replace it.
• Where the market will not accept the costs of
  higher quality fuels, governments should adjust
  taxes or duties to create a price advantage for
  the cleaner fuel. This can rest on pricing
  processes in both state-owned and market driven
  refining sectors.
• Governments with state owned oil sectors and
  price controls should not rely on tax
  differentials between higher and lower quality
  fuels to stimulate investments in refinery
  upgrades, but instead may allocate directed
  subsidies to accelerate the introduction of
  higher quality fuels and complement regulations.
• Where the costs of domestic refinery upgrading to
  produce desired cleaner fuels are prohibitive or
  the investment environment is not attractive,
  governments should look toward regional imports
  over the short term to supply cleaner fuel to the
  market.
• Governments can develop tax incentives for
  cleaner vehicles to indirectly encourage the
  market for cleaner fuels.

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Next steps in Oil Dialogue

• Follow-up Inform governments on the potential
  ability and associated efforts to produce cleaner
  fuels, this in support of the development of
  medium term fuel quality strategies by Asian
  governments
• Road-map Develop consensus among main
  stakeholders (oil industry, vehicle industry,
  emission control technology industry, regulators,
  NGOs) on where, how, and when Asia will move in
  terms of fuel quality and vehicle emission
  levels.
• CAI-Asia is considering a workshop for 2005 to
  bring together all stakeholders to discuss
  outputs of CAI-Asia Oil Industry Dialogue to
  develop consensus on the road map. CAI-Asia will
  invite different groups such as ASCOPE, AMEICC,
  ESCAP, PCFV, UNEP, Male Declaration, SASEC, SAARC
  to the workshop.
• Policy advocacy Promote the promulgation of
  medium term regulations to create predictability,
  and transparency in regulation