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Argus Media: U.S. refiners turn to marine fuel cast-offs with IMO 2020

19 Feb 2020

Elliott Blackburn of global energy and price reporting agency Argus Media on Tuesday (18 February) issued a report of US independent refiners running more intermediate feedstocks as new marine fuel specifications leave a ready supply of alternatives to tight sour crude supplies: 

Preparations ahead of the introduction of the new International Maritime Organization’s marine fuel sulphur emissions rules that went into effect on 1 January left a surplus of sour, lightly processed residues no longer suitable for blending in the marine fuel pool. The price of these products fell by enough in the second half of last year to encourage refiners on the US west and Gulf coasts to run more of them. US imports of former marine fuel components from Russia more than doubled last year compared with 2018 (see graph).

Russia’s M-100 grade of high-sulphur straight-run fuel oil was valued at $16/bl below Ice Brent futures in the fourth quarter, after freight to the US was factored in. This left it looking much better value compared with heavy sour crudes in the US Gulf coast. Mexican Maya and Canadian WCS traded at discounts of around $10/bl in the same period, although M-100 has risen to premiums to heavy sour crudes this year (see graph).

Marathon Petroleum processed around 25,000 b/d of residual fuel oil in the fourth quarter, mostly at its 166,000 b/d Martinez refinery in California. And the firm will complete upgrades to two coking units at its 556,000 b/d Garyville refinery in Louisiana this month, enabling it to process another 20,000 b/d of residue feedstocks in the Gulf coast.

PBF Energy processed 50,000 b/d of high-sulphur fuel oil in the fourth quarter, mostly in the Atlantic coast region. The refiner has capacity for 125,000 b/d across its Atlantic, Gulf and west coast system. PBF’s sweet crude processing more than tripled in the Atlantic coast in the fourth quarter, to its highest since 2013, as competitive prices for light sweet Bakken crude and sour fuel oil feedstocks left room for lighter material in the crude slate.

“We need to keep the top of the tower wet, and that means we run a light crude to balance it,” PBF chief executive Tom Nimbley said.

Valero increased runs of “other” feedstocks in the fourth quarter by 15,000 b/d compared with the third quarter and by 33,000 b/d compared with the fourth quarter of 2018. The refiner is targeting a wider array of non-crude sour feedstocks than it would have considered before the specification change.

“We have worked really hard to characterise some of these that are new to the market, and are trying to run more of them,” Valero chief operating officer Lane Riggs said.

Sweet sirens

Valero’s use of resid and former fuel oil components instead of medium sour crudes helped its refining system process a record 1.7mn b/d of sweet crude in the fourth quarter. The distressed marine blendstocks freed up crude units to take more light sweet grades, the company said. Sweet crudes represented 64pc of the firm’s throughput across a system dotted with complex coking and sulphur-treating equipment built for heavier slates.

Cokers may feast on Russian sour intermediate oils, but US catalytic crackers are starving for sweeter feedstocks amid strong demand from the competing marine fuel pool. Valero, Marathon Petroleum and PBF have cut catalytic cracker run rates as marine fuel blenders make firm bids for low-sulphur vacuum gasoil (VGO). Ultra-low sulphur VGO has commanded premiums of up to $10/bl compared with material sold to catalytic crackers. This should help limit additional production of gasoline sent to storage ahead of the summer driving demand season, refiners say.

“We have actually had economic incentives to almost run the refinery backward,” PBF’s Nimbley said.

Published: 19 February, 2020

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