Overview

Ensuring a cleaner, cheaper source of energy is the main challenge facing the energy sector, particularly the oil refining companies. A global understanding of the impact that energy emissions has on the environment has led to a raft of regulatory standards and driven greener technology initiatives. For companies to prosper, there is a need to be attuned to the global energy industry trends and adapt to changing circumstances. This ability to innovate in order to turn challenges into opportunities is going to become ever more important in coming years in their drive to confront issues in the energy sector.

Issue to Confront

The main challenge facing oil refiners is the need for greener transportation fuels. While there are many uses for refined fuel products - industry, petrochemicals, lubricants - the largest part is fuel for transportation. Consequently, developing more sustainable, clean, efficient products is particularly important in this area. "One of the drivers for refining industry is the changing government regulations on transportation fuel,? says a spokesperson, Liang Ting Wee, Director of Energy & Chemicals Division from the Singapore Economic Development Board (EDB). "Whether it's shipping fuel, or the fuel for your vehicles on the road, or your jet fuel, government regulations are changing around the world."

The European Union (EU) is representative of the trend towards mandatory cleaner fuels. The EU has been bringing in a series of directives imposing progressively stricter requirements for road transport, starting with Euro 1 in 1993, through to Euro 5, which came into force in 2008-09, and Euro 6, which will take effect in 2014. Each one brings more onerous carbon and nitrogen oxide emissions limits for petrol- and diesel-fuelled vehicles. Other countries are increasingly using these regulations as a benchmark for their own emissions standards. Australia, for example, introduced its own regulatory equivalent for heavier vehicles in 2006.

Similarly, the shift to a standard called ultra-low-sulphur diesel (ULSD) represents another attempt to significantly reduce sulphur content in diesel fuels, a measure that had a major impact on refineries worldwide. By 2006, almost all diesel fuels available in Europe and the USA followed this standard, while emissions standards based on this cleaner fuel have been in place in the USA since 2007.

In the marine world, similar shifts are taking place, some mandatory, some volunteered by the industry. Annex VI of The International Convention on the Prevention of Pollution from Ships (MARPOL), regulating emissions of air pollutants from international shipping, was signed in September 1997 and finally came into force in May 2005, setting limits on sulphur content of marine fuels and the emission of nitrogen oxides from ship engines, but the standards were perceived as being too weak. In 2008, the Marine Environment Protection Committee of the International Maritime Organization responded by strengthening the emissions standards, which came into force in July 2010. These revisions require sulphur levels to fall from its current 4.5% to 3.5% in 2012, and 0.5% in 2020, subject to a review in 2018. On top of that, there are designated Emission Control Areas, such as the Baltic Sea, in which the sulphur content must be lower still.

Improvements in green technology are not just about regulatory requirement. They are also methods of improving efficiency and productivity in a business, and meet a growing trend among consumers to insist on more environmentally sustainable products. Greener businesses are not just about meeting conditions set by world regulators, but a useful spur to productivity in their own right.

Moreover, competition is also increasing in the global industry: new refining capacities have come on-stream in markets such as India and the Middle East, offering greater efficiency and the ability to produce cleaner fuels. In markets with older refineries, the pressure will be greater to upgrade and meet the green standards.

In tandem, these challenges create a pincer around the industry. On one hand, industry actors are forced to innovate to meet the requirements of more onerous environmental legislation - a costly process. At the same time, they must deal with this need for research, spending and environmental transformation at exactly the same time that margins are already being squeezed by the competitive pressures of a globalised industry.

How then does the industry respond? If these additional investments are a given, then profitability can best be bulwarked by building efficiencies elsewhere.

Facts on the ground:

Green Initiatives

The pressure of developing environmentally friendly sustainable energy sources supported by a commercially viable, competitive framework is only going to increase, as tolerance for dirty fuels diminishes around the world, which in turn puts pressure on refiners to develop new technologies. The location to develop these technologies will be complemented by a central venue for international trans-shipment activities as well.

In Shell's efforts to create greener fuels and new technologies worldwide, the company invested more than US$1 billion last year in researching alternative energies and energy solutions, focusing on natural gas, biofuels, carbon capture and energy efficiency. In Singapore, the thrust is on the last of those, both in terms of Shell's own operations and in attempts to help customers conserve energy and reduce carbon dioxide emissions.

Developments in Singapore are also part of Shell's global initiatives, such as its FuelSave and Diesel products, which contain Shell's most advanced fuel economy formula ever and can help motorists save up to one litre of fuel per 50-litre tank. There are also efforts to reduce the viscosity of lubricant products, which will make engines more durable and efficient. "We need to recognise that by 2050, two thirds of vehicles are still likely to use current engine technologies and conventional liquid fuels," explains Lee Tzu Yang, Chairman, Shell Companies in Singapore. "So we need to use innovation and partnerships to find ways of improving the fuel economy and cleanliness of those fuels and engines by improving and applying existing technologies."

For ExxonMobil, too, the company announced in November 2010 plans to build a diesel hydro-treater at its Singapore refinery in order to increase its capacity for low-sulphur diesel fuel. "The decision to move forward with the engineering and construction of the diesel hydro-treater at our Singapore refinery reflects both the increasing demand for diesel fuel in the region and ExxonMobil's confidence in Singapore's business climate," says Chris Erickson, Vice President for Planning and Project Execution at ExxonMobil Refining & Supply. ExxonMobil Asia Pacific's Chairman and Managing Director, Kwa Chong Seng, calls the hydro-treater "just the latest in a series of major investments ExxonMobil has made in Singapore to meet the increasing demand in the Asia Pacific region".

The refinery, which will eventually lift low-sulphur diesel capacity to more than 25 million litres per day, follows similar initiatives in the USA and Belgium, but is the company's first such project in Asia. The improved diesel will improve air quality wherever buses, marine vessels, tractor-trailers and even agricultural machinery are used - which, in emerging, industrialising Asia, is exceptionally widespread.

Project executive Jack Henske adds that the new unit will produce a fuel meeting the EU's Euro 4-plus sulphur specifications. "This means that the Singapore Refinery will be able to produce diesel with sulphur concentrations of both 50 and 10 parts per million. This project will bring advanced technologies and innovations to Singapore that will help to reduce emissions, improve waste water quality and conserve water usage."

"The decision to proceed with the project reflects our continued confidence in Singapore's business climate," Henske says. "ExxonMobil has had a manufacturing presence in Singapore for over 40 years. The Singapore government's business-friendly policies have gone a long way to creating a conducive operating environment."

Another example is Neste Oil Corporation's NExBTL renewable diesel plant, which will play an important role in increasing production of cleaner and high quality fuels from Singapore. The renewable diesel the plant will produce creates lower tailpipe emissions than conventional diesel fuel, contributing to better air quality. The plant in Singapore will produce 800 kilotonnes per year, making it Asia's largest renewable diesel plant. It will also help Singapore's push into sustainable biorenewable feedstock as an alternative source of raw material for transportation fuels.

Government Support

In their move to develop new technologies to improve fuel efficiency, industry leaders are also looking to balance between solutions development and cost margin management. To address this, the role of public-private partnership becomes increasingly important as the public sector forms a strong base of support in providing companies with a commercially viable environment to innovate. This will in turn reduce some pressure for companies in their move into developing new technologies.

Companies in Singapore stress the sense of partnership. "Without the Singapore government's support, we would not have been able to make the SPEC project investment," says Lee, referring to the Shell Eastern Petrochemicals Complex project, a mega-project that involved the construction of a new world-class ethylene cracker on Bukom Island, a world scale mno-ethylene glycol (MEG) plant on Jurong Island and enhancements to the existing Bukom Refinery. JTC Corporation reclaimed the land on which the cracker was built, helped to install the undersea pipelines, national water agency PUB provided the water, the Energy Market Authority integrated the generation system with the existing system on Jurong Island, and the Ministry of Manpower helped with the foreign workers who, at the peak of construction numbered 15,000, to build the cracker. Numerous other agencies were involved, too. "All the government agencies involved were really well coordinated by EDB, enabling businesses to carry out a very complex project."

ExxonMobil had a similar experience. "Other government agencies, such as JTC and PUB, were instrumental in securing the resources and the necessary infrastructure," says Henske.

And already, Shell integrated oil and chemicals plants on Bukon and Jurong Island have helped to bring in other related companies, such as Lanxess, which is building a butyl rubber plant on Jurong Island in order to benefit from the various product feedstock Shell will provide. Other synthetic rubber plants are being developed by Zeon and Asahi Kasei, again attracted by the ready availability of feedstock. "More companies are coming now because there is feedstock and infrastructure to plug into on Jurong Island. This makes Singapore very attractive as a manufacturing base to supply China, India and the rest of ASEAN," Lee says.

"The multiplier effect created by our investment in the construction, engineering, logistics, utilities sectors is also a significant contribution to job and wealth creation in Singapore," adds Lee. "And we are not going to stop there."

The Singapore difference:

Commitment to Sustainability

If companies hope to be sustainable, they need the infrastructure to support it. The best places to build oil refining and downstream businesses are those which help companies create the efficiency and sustainability they need, by making it as easy as possible to integrate with other parts of the supply chain and fostering new technology.

For example, Singapore's energy and chemicals industry is built on Jurong Island. The Singapore Economic Development Board, JTC Corporation and several other government agencies are also working on a Jurong Island version 2.0 initiative, which plans to enhance the long-term competitiveness and environmental sustainability of the island hub. This 10-year master plan, announced in early 2010, aims to take a systems approach to make the best possible use of scarce resources - energy, carbon, water and land - while investigating new competitive options.

Related to this is the introduction of a new feedstock to Singapore, liquefied petroleum gas (LPG), for which a new dedicated terminal is under consideration. A new liquefied natural gas (LNG) terminal is already well underway and due to start up in 2013, lowering dependence on imported gas from neighbours and - once again - improving the possibilities for integration and partnership.

"As Singapore transforms itself for the future, JTC will partner its customers to understand their evolving needs and develop appropriate 'future-ready' infrastructure solutions,' says a JTC spokesperson. "The corporation will continue to expand its innovation capacity and offer infrastructure facilities of a calibre that sets the city state apart as an investment location.'

Singapore has become a centre of the efforts of multinationals to create greener techniques in their refining businesses. In building its own oil-refining sector without the benefits of large-scale crude oil production or significant domestic demand, the city-state is able to cater for Asia's demand for fuel. Today, Singapore is a significant oil-trading hub, anchored by its base of oil refiners on Jurong Island. It is also a price discovery centre for oil products in Asia.