Ben Ziesmer & Frank Wilson, Jacobs Consultancy 

Changing regulations are influencing the petroleum coke (petcoke) market today and are likely to have an even larger impact in the future. The most immediate impact is China’s possible regulation of petcoke sulphur content. In the near term, India’s probable application of a Clean Energy Tax to petcoke is keeping market participants on edge as they await the Indian government’s decision. Longer term, implementation of the International Marine Organization’s (IMO) global 0.5% sulphur limit for bunker fuel could have a substantial effect on petcoke.

Before explaining how each of these regulatory concerns evolved, we must first explain the production and purpose of petcoke.


Petcoke is produced as a byproduct in many — though not a majority of — oil refineries. Crude oil is first processed in an atmospheric distillation unit, followed by a vacuum distillation unit. The heavy residuum exiting the bottom of the vacuum tower (i.e., vacuum tower bottoms, or VTB) can be used to make asphalt, blended with some light products such as diesel to produce residual fuel oil (RFO), or used as coker feed.

Traditionally, cokers are installed in oil refineries to convert VTB and other heavy residual oils into higher-value light transportation products (e.g., gasoline, jet fuel, and diesel fuel). Until recently, a coker almost invariably increased refinery profitability because the yield of high-value transportation fuels is maximized and production of low-value residual fuel oil (RFO) is minimized. While the coking process has been in use since the 1930s, petcoke production has seen its largest growth following 1990 because worldwide light transportation petroleum product demand has outpaced RFO demand. Cokers have been and continue to be the preferred refining technology that allows the refining industry to reduce its production of RFO per barrel of crude oil processed, and bridge the gap between light product and RFO demand growth.

Additionally, beginning in the late 1990s, two new factors have been driving the construction of cokers:

  • provide assured outlet for heavy crude oil: coking units allow a refinery to process lower-cost, heavy, sour crude oils. This was the driving force for the nine new or expanded cokers installed on the US Gulf Coast from 1996–2004 when more heavy crude oil entered the market, and heavy crude oil producers signed long-term crude supply agreements to induce refiners to install additional coking capacity.
  • ultra-heavy crude oil production: cokers are used in upgraders that produce various grades of synthetic crude oil (SCO) from bitumen or ultra-heavy crude oils. This type of upgrader exists in Venezuela where ultra-heavy Orinoco Belt crude oil is upgraded and exported as lighter crude oils, and in Canada where upgraders are used to produce SCO from the bitumen derived from Alberta oil sands.


There are two general applications for petcoke: as a carbon source and as a heat source. The former requires better quality (e.g., low sulphur and metals) and commands higher prices. Green petcoke is usually upgraded by calcination (a process which removes moisture and volatile matter and improves critical physical properties) when it is used as a carbon source. Petcoke that has been calcined is referred to as calcined petcoke (CPC). The largest market for CPC is in the production of anodes for aluminium smelting; other uses for CPC are in the production of carbon electrodes for electric arc furnaces, titanium dioxide (TiO2) production, and as a recarburizer in the steel industry. About 25% of the petcoke produced is sold into these higher value-added markets for higher- quality petcoke; the remainder of the petcoke is sold into the fuel market, where it almost always competes with coal.

On August 29, 2015, President Xi Jinping of China signed and issued Presidential Decree No. 31, which prohibits the sale, burning, or importing of ‘unqualified’ coal, petcoke, and other sources of air pollution, to take effect 1 January 2016. This is the latest version of the Law on the Prevention and Control of Atmospheric Pollution. The petcoke market response leading up to and months after the effective day was one of high uncertainty because no detailed regulations defining ‘unqualified’ petroleum coke were published.

The uncertainty is clearly depicted in Chinese petcoke import statistics as petcoke import volumes crashed Y/Y (e.g., January 2016 vs. January 2015). YTD through April, total imports were down 33% and 45% versus the same periods in 2015 and 2014, respectively.

Since China has historically segregated petcoke imports as either less than or greater than 3.0% sulphur, most petcoke importers assumed that petcoke with >3.0% sulphur content would be classified as ‘unqualified.’ Consequently, imports of <3.0% sulphur petcoke boomed while imports of >3.0% sulphur petcoke crashed (see China Petcoke Imports <3.0% Sulphur and China Petcoke Imports >3.0% Sulphur charts).

Simplified coking refinery flow diagram

As time has passed since January 2016 without rules being published, more petcoke market participants made deals to import >3.0% sulphur petcoke, and the quantity of this material imported into China increased each month. It appears any vestiges of concern regarding impending petcoke regulations ended in May and imports of >3.0% sulphur petcoke boomed (see China Petcoke Imports >3.0% Sulphur chart).

It should be noted that increased imports of higher sulphur petroleum coke do not necessarily significantly increase sulphur dioxide (SO2) emissions because the process in which petcoke is used can significantly affect emissions. For example, higher sulphur petroleum coke is often used in cement kilns or fluidized bed boilers, both of which inherently capture at least 90% of fuel sulphur content. On the other hand, lower sulphur petroleum coke is often used in industrial processes that do not inherently capture fuel sulphur and may not have SO2 emission control equipment.


Presently, the Indian government levies a 400 Indian rupee per tonne (about US$ 6/tonne) Clean Energy Tax on coal. However, there is no Clean Energy Tax levied on petcoke use. Indian coal producers have put forward the argument that it is only fair that a Clean Energy Tax be imposed on petcoke. 

Moreover, they argue that the Clean Energy Tax on petroleum coke should be much higher than coal as petcoke has much higher sulphur content than coal. The Indian government has planned hearings to obtain input from all concerned parties.

When compared to coal, petcoke has greater heating value (e.g., 7,500kcal/kg vs. 6,000kcal/kg, NAR [net as received] basis) but typically contains higher levels of sulphur, is more difficult to pulverize, and is more difficult to combust completely. Thus, petcoke normally sells at a discount to coal ($/million Btu basis).

The proposed Clean Energy Tax is important because India has become the clearing market for US Gulf Coast and Saudi Arabia petcoke. Imposition of a Clean Energy Tax on petcoke use will adversely impact the competitive position of petcoke in Indian


The IMO’s Marine Environment Protection Committee (MEPC) is scheduled to meet in October 2016 to review the implementation schedule of the global 0.5% sulphur cap on the bunker fuel portion of Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL VI). The MEPC will consider whether the regulation’s compliance date 1) remains effective January 1, 2020, as currently planned, or 2) will be deferred, possibly to as late as January 1, 2025.

MARPOL VI is intended to reduce sulphur emissions (principally sulphur dioxide) from marine vessels operating outside Sulphur Emission Control Areas (SECAs) via either Exhaust Gas Cleanup (EGC) equipment (SO2 scrubbers) or limiting the vessel’s fuel to a maximum of 0.5% sulphur. The MEPC commissioned a study to determine if there would be sufficient availability of low-sulphur fuel to support the 0.5% sulphur global cap in 2020. The MEPC is reviewing the fuel availability study prior to its October 2016 meeting; indications are that the study concluded that there will be sufficient low-sulphur fuel to support maintaining the 2020 deadline. Its decision will have profound implications on the economics of international shipping and on the petroleum industry.

In January 2015, SECAs were established in the coastal waters off North America and Northwest Europe, requiring vessels operating in these areas to use fuel with a sulphur content of 0.1% or less.Additional SECAs are being implemented in Asia (2016 and 2017) and the Mediterranean (2020). Meeting the 0.1% sulphur limit in these areas has generally been accomplished by using a distillate fuel, such as marine gas oil (diesel), with the required sulphur limitation, or using liquefied natural gas (LNG). While the shift from RFO to marine gas oil (MGO) was accomplished with relatively little disruption to bunker supply channels or additional cost, it is important to note: 1) overall petroleum prices were falling dramatically during 2015, masking the cost differential, and 2) the quantity of RFO displaced and additional MGO demand was relatively small compared to the estimated 3+ million barrels per day (bpd/day) of high-sulphur RFO (HS RFO) currently being consumed as bunker fuel.

Residual Fuel Oil is the bunker fuel most ships currently use when sailing in international waters. RFO is a blend of refinery heavy oil streams (residuum) and less viscous/lower sulphur refined products (e.g., kerosene, light cycle oil) to meet bunker fuel specifications1. This HS RFO contains approximately 2.1 million bbl/day (~127 mt/year) of high-sulphur heavy oil streams.

If the shipping industry does not install EGC on any vessels, the potential impact of MARPOL VI on the refining industry of displacing this much high-sulphur residuum (mostly vacuum tower bottoms) would be enormous. While it is possible to remove the sulphur from high-sulphur residuum directly, given the complex nature of these hydrocarbons, resid desulphurization is a costly process both in terms of capital and operating costs. An alternative path for the displaced high- sulphur residuum is processing via delayed coking followed by distillate desulphurization. As discussed previously, coking converts heavy residuum into light products and petcoke. This path would produce a distillate fuel, similar to MGO, meeting the required sulphur limit of 0.5% maximum.

Coking is the dominant heavy conversion technology. If the refining industry selects coking to accommodate 80% of the displaced residuum, then approximately 1.6 million bbl/day (~97 mt/year) of coking capacity would have to be installed at a cost on the order of US$40 billion. This new coking capacity would produce about 30mt/year (million tonnes a year) of petcoke. Currently approximately 45mt/year of petroleum coke is traded in seaborne markets. This calculation is illustrative of the magnitude of the issue facing the refining industry. Obviously, EGC will be installed on some vessels; the magnitude of market penetration by EGC will determine the magnitude of the problem of displaced HS residuum that the refining industry will face.

Another proposed alternative to burning a liquid fuel oil with less than 0.5% sulphur content would be using LNG as bunker fuel. While LNG fuel has been gaining market acceptance in coastal voyages, there remain considerable concerns regarding its use in longer Transatlantic or Transpacific voyages. Due to the much lower density, significantly larger capacity fuel tanks would be required. While these larger tanks might be viable for large, new build vessels, installation on smaller vessels or in retrofitting existing vessels will be problematic. However, from a refining industry point-of-view, use of LNG still leaves the refining industry with no outlet for displaced high-sulphur residuum.

The outcome of the MEPC meeting in October 2016 will propel refiners and ship owners to evaluate a path forward to comply with the new sulphur content limitation. One of the key issues facing the refining industry is that installing new coking or resid desulphurization capacity requires about five years from initial planning to commercial operation, but there will be fewer than 39 months between the MEPC’s October meeting and January 2020. While many questions remain unanswered, one thing is clear: MARPOL Annex VI is moving forward. Its impact on international shipping and the petroleum industry is forthcoming.

Whether China implements Decree No. 31 or MARPOL Annex XI takes effect in 2020, the petcoke market and its participants are dealing in much uncertainty today. Understanding the complexity of the issues and their potential impacts on the petcoke market is our work.


Ben Ziesmer (Senior Consultant)

Contributing editor to Jacobs Consultancy’s Pace Petroleum Coke Quarterly©. He has an in-depth background in the power sector, including experience in procurement, operations, environmental compliance, and engineering. He leads Jacobs Consultancy’s fuel-grade petcoke practices and has been the project manager for numerous studies involving the fuel- grade petcoke market, environmental issues, and power generation.

Frank Wilson (Senior Consultant)

Frank Wilson brings years of experience and an in-depth knowledge of the petroleum, chemicals, and energy industries to the Carbon Group. He is a contributing author for the Pace Petroleum Coke Quarterly and is involved with single-client studies of the global fuel-grade and anode-grade petcoke markets. Prior to joining Jacobs, he was a Petcoke Marketing Manager for ExxonMobil.