Refinery View – Meeting 2020 Demand



Despite the 2020 decision for a global sulphur cap of 0.5% now being in place, the refining sector remains uncertain on how it will respond in fulfilling the demand for compliant bunkers.  It is anticipated that the overnight demand shift from residual fuels to distillate fuels will require 195 million tons of compliant fuel, in place of 205 million tons of highsulphur residual fuel today.  Refinery economics will dictate if and how the industry will make these compliant fuels available and it should be noted that the regulation itself gives them no obligation.  In fact, the vast majority of refineries see other transport fuels such as gasoline, jet and diesel as strategically more important, and actually have the opportunity now to opt out of marine fuel production altogether.  There is a great deal of uncertainty in how demand and price volatility will play out in the intervening years and the impact of scrubbers and alternative fuels such as LNG may have.  Plus, it is expected that in many cases, non-compliance could potentially be common, in the absence at the moment, of a clear enforcement strategy.  If the refining industry were to attempt to respond, severe strains on all global fuels markets can be expected, pre and post 2020.  Approval and investment in refinery plants to increase distillate output via hydrogen and sulphur recovery, costing as much as $100m, would already be in place at refineries.  However, it seems it is not, and if one were approved today, it could not be expected to be on-line within 5 years.

For refiners who today actively produce high sulphur HFO for marine application, the uncertainty is higher still, in that they must consider how they can deal with the surplus volumes of this grade.  They may consider to invest in coking plants and cease producing fuel oil altogether, converting all to distillate and gasoline.  Undoubtedly new fuels will emerge in the market, being untried and untested 0.5% sulphur “hybrid” fuels.  History has shown the maritime industry may be slow to accept these, and could choose to comply initially by sticking with accepted 0.1% fuels.  As we know, although there is now a firm line in the sand, for ship operators the uncertainty is no less.

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Source: Innospec Fuel Watch


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