In International Shipping News 16/11/2016
Low sulfur requirements for global maritime fuel could benefit complex US refiners over the next four years.
Some major US independent refiners expected only gradual change from a sharp reduction in bunker fuel sulfur to begin in 2020. But refiners that invested in equipment to efficiently process heavily contaminated, high sulfur crudes could see higher ultra-low sulfur diesel demand and lower feedstock prices, executives said.
“If you have a coker or you can get it into the asphalt business, you might see better economics on the coker feed that you’re buying,” PBF Energy chief executive Tom Nimbley said during a third quarter earnings call. “This is a big deal.”
The International Maritime Organization voted in late October to impose a 0.5pc cap on sulphur in marine fuels, down from 3.5pc today. The shift would require tankers to invest in exhaust scrubbers, the costly conversion of vessels to liquefied natural gas (LNG) fuel or for the fuel industry to make lower sulfur bunker fuels more widely available.
There have been even lower-sulfur fuel requirements in place since January 2015 for US, Canadian and North Atlantic coastlines. Plentiful natural gas, a key component for sulfur-reducing equipment, as well as wide sour crude discounts and tougher domestic sulfur requirements have led US Gulf coast refiners in particular to invest billions of dollars on equipment best suited to remove sulfur from fuels.
Less complex refiners could run more sour crudes by blending higher-sulfur residue from their facilities into the marine fuel supply. But the lower fuel requirements will cut off that outlet, forcing those facilities to either run more expensive, lower-sulfur crude or accept poorer prices for high sulfur residue, Nimbley said.
All but one of PBF’s five refineries operate coking units capable of efficiently processing very heavy crude. PBF operates the US Atlantic coast’s only significant coking capacity.
Maritime fuels would instead need much more ultra-low sulfur diesel (ULSD) to blend down to specification, he said. US refiners have more than doubled production of that fuel, from an average 1.5mn b/d in 2006 to 4.6mn b/d last year, according to the Energy Information Administration.
Tesoro expected a “very good opportunity” from the shift on the US west coast and Pacific northwest.
“We haven’t quantified the impact but our initial view of the change is that it will provide an opportunity for our business,” chief executive Greg Goff said during a quarterly earnings call.
Phillips 66, which operates roughly 364,000 b/d of coking capacity and almost 1mn b/d of US coastal refining capacity, expected a more gradual response. Sulfur continues to tighten “over time” with a gradual response in equipment that reduces the contaminant in fuels, president Tim Taylor said during a quarterly earnings call.
“There still seems to be a plenty large enough market sink out there to absorb that,” Taylor said.
Refiners that purchase intermediates to fill their gasoline-producing fluid catalytic cracking (FCC) units, meanwhile, could face more competition for the material. Vacuum gasoil (VGO), which typically trades at a discount to distillates, could see increased demand as a blendstock to produce lower sulfur bunker fuel. Low sulfur straight-run residual and hydrotreated VGO would play a major role in meeting future bunker fuel requirements, Downstream Advisors president Steve Graybill said at the Argus Fuel Oil & Feedstock conference in Miami late last month.
Both Valero and Flint Hills Resources have worked to reduce purchases of the intermediate at Houston and Corpus Christi refineries over the past two years by adding capacity to derive more VGO from domestic crude.
Source: Argus
