Alternative blend streams are expected to enter into the bunkering market as part of IMO 2020 when vessels are required to consume marine fuel with a sulphur limit of 0.50%, forecast analysts from global energy and commodity price reporting agency Argus Media.
“While assessing the market in the U.S. we noticed something interesting,” Stefka Wechsler, Editor, Argus Marine Fuels, said at the IMO 2020: Compliant prices, forward curves and forecasting webinar on Tuesday.
She indicated U.S. based traders and refiners believing prices of low sulphur (LS) vacuum gas oil (VGO) and LS straight run fuel oil rising to reach a point where it will be less attractive as a refinery feedstock in 2020.
“Because of that they could be sold directly to the bunkering market,” she states.
“U.S. traders are looking to import VGO and straight fuel oil from Algeria, Nigeria, the Russian Baltic Sea and the Russian Black Sea, and these are plans that will probably materialise as we get closer to 2020.
“Refiners, on the other hand, are planning blends of residual fuel oil and ultra-low sulphur diesel that has 50 ppm sulphur content because they are looking to find home for their high sulphur fuel oil output.
“Currently, the residual/gas oil blend prices [for producing 0.5% sulphur compliant bunker fuel] are looking less attractive compared to outright LS VGO and straight run fuel oil values.”
Data from Argus Media’s in-house scrubber database, meanwhile, suggests the current market for marine fuels totalling at 200 million metric tonnes (mt).
“We expect about 30 million mt to remain in the bunker pool through scrubbers,” says Matt Wright, Senior Analyst, Consulting Services, Argus Media.
“We also expect about 25 million mt to remain in the bunker poll though non-compliance; this figure includes intentional cheating but also fuel oil non-availability reports which is where a vessel is unable to obtain compliant fuel oil at a particular port.
“This is still quite a difficult figure to estimate as it is still unclear as to how the rule is going to be enforced.”
The remaining figure, at approximately 140 million mt, sees high sulphur fuel oil (HSFO) being replaced by 80 million mt of MGO and a 60 million mt 0.5% sulphur marine fuel blend.
“Producing sufficient MGO and not 0.5% sulphur LSFO is going to be a challenge for refiners. There is currently no market for 0.5% sulphur LSFO and this is part of the problem,” he highlights, while noting of three LSFO production methods by refiners.
These are by processing of low sulphur crude, installation of residue hydro treating capacity, or by alterations of existing operations; however, all methods have disadvantages.
“There is not enough low sulphur crude available, not enough sufficient hydro treating capacity to meet demand and not all of this will be used in the bunker pool, and this [alteration of operations] comes at the expense of light end transport fuels such as gasoline.”
Moving forward, Wright notes the production of compliant IMO 2020 fuel to rely on light products.
Marine gas oil (MGO) will compete directly with jet diesel in the middle distillates sector; while the production of 0.5% compliant marine fuel will require a mix of other fuel grades which are LPG, naphtha, gasoline, jet diesel and a small amount of residue.
Demand for gasoline in the road sector will continue to grow, and replacing losses from diverting light products into the bunker pool will require additional crude runs.
Photo credit: Argus Media
Published: 19 December, 2018
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