- SK Energy is ushing to complete a new processing unit ahead of schedule to boost LSFO.
- Idemitsu is taking a more cautious stance, increasing capacity for low LSFO and also relying on blending to produce IMO2020 compliant bunker fuel.
- The changes affect demand from 50,000 merchant ships consuming about 4 million barrels of marine fuel a day.
According to an article published in Reuters, SK Energy’s largest refinery in South Korea, engineers are rushing to complete a new processing unit ahead of schedule as the firm looks to boost sales of low-emission fuels before new marine fuel standards take effect in just one month.
Cautious move to increase LSFO supply
In Japan, the country’s second-biggest refiner Idemitsu Kosan Co. is taking a more cautious stance, increasing capacity for low sulphur fuel oil (LSFO), but also relying on blending to produce IMO2020 compliant bunker fuel.
The different approaches come as refiners across the world grapple with the shipping industry’s most drastic fuel transition since it moved from burning coal to oil early last century.
New International Maritime Organization (IMO) rules from Jan. 1, 2020 prohibit ships from using fuels containing more than 0.5% sulphur, compared with 3.5% now, unless they are equipped with exhaust-cleaning “scrubbers”.
Graphic: Benchmark refining margins for Asia here
The changes affect demand from 50,000 merchant ships consuming about 4 million barrels of marine fuel a day.
Desulphurisation process
When completed in January, three months earlier than planned, SK Energy’s 40,000 barrels-per-day vacuum reside desulphurisation (VRDS) will be its first plant solely devoted to producing compliant LSFO.
“We conservatively expect (the new unit) to create 200 billion won ($170 million) worth of profits annually depending on market conditions,” Lee Duk-hwan, project leader of SK Energy’s optimization operation office, told reporters during a site visit last week. “If market conditions are favourable we see 300 billion won worth of profits,” Lee said.
The unit will start commercial operations in March after making fuels on a trial-basis. The refiner has so far relied on its trading arm to create usable blends from a mix of produced and purchased fuels and oil.
With shipping companies delaying fuel orders until the last minute, global refiners do not have clear indications of what fuels will be most in demand. Refiners also have not been able to guarantee the quality and compatibility of fuels they supply, the Chamber of Shipping of America said last week.
Idemitsu to increase its capacity
Idemitsu Kosan is planning to increase capacity at its 190,000-barrel-a-day Chiba refinery’s residue crude hydro-desulphurizing unit, to boost output of LSFO or other IMO-compliant fuels.
Japan’s second-biggest refiner is also upgrading its fluid catalytic cracking unit to produce other light products such as gasoline to offset declining HSFO demand, a refinery manager, Hiroshi Kondo, told reporters during a recent site visit.
However, the company is still assessing demand for alternative fuels and has been blending products to produce IMO2020 compliant marine fuel.
“We will only make selective and concentrated investments in the areas where we see growth or to meet new environmental regulations such as IMO2020,” Kondo said.
Idemitsu plans to spend up to 12 billion yen ($110 million) on the changes at Chiba from next June, a company spokesman said.
The moves are all aimed at boosting profitability amid volatile margins as the market gears up for the change.
Decrease in margins of HSFO
Declining margins on high sulphur fuel oil as demand falls off for the polluting fuel have weighed on overall refining profitability.
Asia’s benchmark Singapore refining margins DUB-SIN-REF, or profits on refining a barrel of Dubai crude oil into products, were at -$0.80 per barrel on Friday after hitting the lowest since 2008 on Nov. 22.
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Source: Reuters
