Low sulphur, high price

European refiners anticipate increased margins and improved utilisation due to the IMO 2020 cap

The International Maritime Organisation’s (IMO) 0.5pc sulphur cap on bunker fuels, imposed from 2020 globally, will require a step change for European refineries. Utilisation and margins are expected to receive a boost from increased demand for marine gasoil and diesel, accelerating the trend away from conventional fuel oil.

The cap “is going to represent a significant change for refiners in Europe, because the switch for fuel oil from 3.5pc to 0.5pc is not straightforward,” says Damien Valdenaire, science executive, refining operations, Concawe, the environment research arm refining industry association FuelsEurope. “Refineries in Europe don’t have the ability to remove the sulphur… we’ll have to produce a fuel that is a different product.”

Gordon McManus, research director, EMEARC oils and refining at Wood Mackenzie, says the cap will increase demand for an alternative, the high-value product of marine gasoil. “It is expected to increase refineries’ margins overall. There isn’t enough flexibility to increase production of low sulphur fuel oil (LSFO) sufficiently to meet demand. Demand for marine gasoil will increase, which will make it go up in price. Refineries are going to work hard to meet the increased demand for this type of product.”

Tim Fitzgibbon, oil and gas expert at McKinsey, adds: “Many refiners are confident of being able to make low sulphur bunker fuel. To make it compliant [they will make it] from a combination of already-produced LSFO and by shifting to sweeter, lighter crude. There is, however, some uncertainty about the amount of LSFO that refiners can segregate. People may find that it is operationally more challenging to segregate those barrels.”

In the short term, the most likely outcome is that refiners will shift to a “fairly even mix” of LSFO and marine gasoil (or perhaps marine diesel), with only residual demand covered by high sulphur fuel oil (HSFO), he says. . . . . . .

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