By Max Tingyao Lin – Original Article Link
“It will not be a distillates’ world,” says ExxonMobil Official
BP’S JASON BRESLAW SAYS REFINERIES ARE RELATIVELY GOOD AT CHANGING YIELDS.
THE post-2020 bunker scene will see 0.5% sulphur fuel oil produced from residual fuel become the preferred marine bunkering choice, according to two of the world’s largest energy firms, even as such products have yet to emerge.
Based on the International Maritime Organization’s MARPOL Annex VI, vessels will need to run on liquefied natural gas or bunker fuels with 0.5% sulphur limits from 2020, and if they want to continue consumption of 3.5% sulphur heavy fuel oil they will have to be installed with scrubbers.
Some institutions, including the International Energy Agency, EnSys Energy and Navigistics Consulting, have predicted that ship operators will switch to compliant distillates due to such fuel’s stable availability.
However, oil refineries will still produce large quantities of heavy fuel oil, also known as residual fuel, as part of the refining process, and these can be blended or processed further into fuels that can comply with the IMO rules and be cheaper than distillates.
During the International Petroleum Week conference’s bunker session, ExxonMobil’s global marketing manager in marine fuels Iain White said: “There is going to be a lot of blending in the market.”
“There is going to be residual fuel used in the marine market in some shape or form…it will not be a distillates world.”
Jason Breslaw, BP’s MARPOL lead for 0.5% marine fuels development, said distillates will be the initial choice as bunker fuel before refineries ramp up production of compliant heavy fuel oil based on price signals.
While the transition could take three to 24 months, “in the longer term you will find over half of the market supplied by the new 0.5% sulphur that will come to the market,” he said. “Refineries are relatively good at changing yields.”
However, this process—even if it can be realised—may not be smooth sailing. Distillates became the preferred fuel in the emission control areas across the globe that adopted the 0.1% sulphur bunker rules earlier this century, while products produced from residuals never really took off as they could often be off-spec while not being much cheaper than distillates.
The forecasts from BP and ExxonMobil, like Shell’s, showed the compliant fuels produced from heavy fuel oil will account for an overwhelming majority of marine fuel markets eventually after 2020. But the majors are expected to have stronger capability than others in producing those products.
“The new, as yet unknown 0.5% blends will present significant problems,” Marine and Energy Consulting managing director Robin Meech said.
“The majors have roughly 20% the bunker market,” he said adding that the share may increase on their capability to supply compliant products. “[But] selling bunkers to an industry in dire financial situations and on a 30-day line of credit isn’t a natural business for major oil companies.”
Further complicating the matter would be the vessels that can continue using 3.5% sulphur fuel with scrubbers onboard. Based on his prediction that the price spread between 0.5% sulphur and 3.5% sulphur fuels will amount to $315 per tonne in 2020, Mr Meech said the best timing for owners to install scrubbers would be in late 2019.
“Don’t delay,” he said, predicting that the spread will narrow to $150 per tonne in 2030 as demand for residual fuel recover on more installations of scrubbers, which will consequently prolong the payback time for owners.
However, if consumption of residual fuels does recover, refineries will lack incentives to upgrade them into 0.5% sulphur products, CITAC Africa executive director David Bleasdale said. “If refiners invest, will high sulphur fuel be available for scrubbers?”
The residual fuel can also be consumed by owners that choose not to comply with the IMO rules, and estimates of non-compliance rates vary. While industry estimates range from 5%-35%, Mr Breslaw said, “shy of 9%” of the global fleet will not comply with BP’s forecast. This figures takes into consideration those operating under flags that do not sigh Annex VI.
“It can be relatively straightforward to cheat on a quantity perspective. But from quality it’s hard to cheat,” he added.
Still, with the price spread between low- and high-sulphur fuels, the incentive to cheat “is going to be quite big,” Mr Bleasdale said.
In addition, port state control officials will enforce the IMO rules in territorial waters at least. “[But] port states never got much money…they need to be trained, and that needs budgets,” Mr Meech said.
LNG as marine fuel will only take off after 2025, Mr Meech said, as owners struggle with higher construction costs for ships that can run on LNG and infrastructure develops. By 2035, over 50m tonnes of LNG will be used as bunker, he predicted.
HANISHA GANWANI
Senior Account Executive