The Outlook for Residual Fuel Production in · PDF fileThe Outlook for Residual Fuel...
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The Outlook for Residual Fuel Production in 2020 Presented by John M. Mayes Platt’s Bunker & Residual Fuel Oil Conference June 25, 2015
Transcript of The Outlook for Residual Fuel Production in · PDF fileThe Outlook for Residual Fuel...
The Outlook for Residual Fuel Production in 2020
Presented by John M. Mayes
Platt’s Bunker & Residual Fuel Oil Conference
June 25, 2015
International consulting practice since 1971
Downstream focus; refinery/chemical engineers
Industry and financial clients
Publish various outlook and forecast products Crude and Refined Products Outlook Refinery Construction Outlook World Crude Oil Outlook Special Studies
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Turner, Mason & Company
Upcoming shift to low sulfur bunker fuel in 2020 to present problems and challenges for ship owners and refiners. • New regulations initiated by the International Maritime
Organization (IMO)
• IMO has been given jurisdiction by the UN over shipping safety and environmental issues in international waters
• In January of 2020, bunker sulfur levels will decline from 3.5% to only 0.5%
• In effect in all international waters with the only exception for Emission Control areas (ECAs)
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2020 Bunker Fuel Requirements
Interests of two groups are interconnected. The best transition is one where needs of both have been met. • Vessel owners are concerned about the supply of bunker
fuel o Will sufficient volumes be available
o What will be the price of low sulfur bunker fuel
• Refiners are concerned about their product mix o Will distillate be downgraded into bunker fuel
o Where will high sulfur fuel be sold
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Concerns For the Future
Vessel owners have options. • Install stack scrubbers
• Convert to Liquefied Natural Gas (LNG)
• No nothing and burn fuel that is available o Likely to result from blending large quantities of distillate
o Supply of fuel likely to be sufficient
o Cost relative to crude oil to increase
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Perspective from Vessel Owners
Vessel owners have luxury of not having to be proactive • Prices of bunker fuel to rise
• Increased pricing to be felt somewhat evenly across the industry (except for LNG vessels and those using scrubbers)
• Not to have a significant impact on competitive transportation sectors o Potential shift toward trucking/rail in North America and Europe
o These transitions more driven by ECA requirements of 0.1% S bunkers
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Perspective from Vessel Owners
Refiners have a greater risk. • Use of distillates in bunker pool will displace higher sulfur
resids creating a surplus of HS resid
• Price of high sulfur fuel oil to decline
• Some high sulfur resid may have no disposition
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Perspective from Refiners
Refiners have options. • Blend low sulfur bunker fuel using distillates
• Compete in a shrinking high sulfur fuel oil market
• Process residual fuel away o Coking units
o Resid cracking units
o Resid desulfurization units
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Perspective from Refiners
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Bunker Fuel in 2020
Distillates can be blended to produce 0.5% S bunker fuel, but what about the surplus resid?
• 0.5% sulfur bunker fuel can be produced by blending 1.3 million BPD of distillate
• 1.2 million BPD of resid will be displaced
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1986 1990 1994 1998 2002 2006 2010 2014
Mill
ion
BPD
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Global Residual Fuel Demand Global residual fuel demand has been declining for decades.
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1986 1990 1994 1998 2002 2006 2010 2014
Mill
ion
BPD
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Global Residual Fuel Production As a result, global residual fuel production has also been declining for decades.
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Global Residual Fuel Demand Bunker fuel comprises approximately 39% of total demand for residual fuel.
Bunkers 39%
Utilities 16% Industrial
12%
Feedstocks 8%
Other 25%
• Bunker demand is single largest use for residual fuel
• Electricity generation is second largest use
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101112
1986 1990 1994 1998 2002 2006 2010 2014
Mill
ion
BPD
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Global Non-Bunker Resid Demand Residual fuel demand for products other than bunker fuel is down by 58% since 1986.
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1986 1990 1994 1998 2002 2006 2010 2014
Mill
ion
BPD
Total Bunker Residual Fuel
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Global Bunker Demand The only bright spot for refiners has been increasing demand for bunker fuel.
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1986 1990 1994 1998 2002 2006 2010 2014
Res
id P
erce
nt
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Resid Share of Bunker Pool The residual fuel component of bunker fuel is declining as distillates are added.
At the current global coker construction rate, fuel oil will exceed demand in 2020 • Global crude supply will increase by 5.8 million BPD by
2020, raising fuel oil supply by 800 MBPD
• At announced construction rate of cokers, fuel oil surplus on 1/1/2020 will be around 1.0 million BPD
• Construction of new coking units needs to rise from announced rate of 400 MBPD to around 600 MBPD to balance supply
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Global Fuel Oil Surplus
0500
1,0001,5002,0002,5003,0003,5004,000
Fuel Oil Supply Fuel OilDemand
Supp
ly/D
eman
d C
hang
es, M
BPD
2020 Shift LNG & Scrubbers 2015 ECA Decline in Other Demand Incremental Crude
Announced cokers
HS Bunker Bunker Growth
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Fuel Oil Balance Changes 2014 to 2020
Fuel oil supply is increasing faster than demand between 2014 and 2020.
0100200300400500600700
2014 2015 2016 2017 2018 2019
New
Cok
ing
Cap
acity
, M
BPD
New Capacity Required Additions
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Global Coker Capacity Additions New coking unit additions are below levels necessary to balance fuel oil supply and demand in January 2020.
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100
200
300
400
500
600
U.S. OtherNorth Am.
Cen. & S.Am.
Europe MiddleEast
Africa FSU China India OtherAsia/Pac.
New
Cok
ing
Cap
acity
, MB
PD
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Global Coker Capacity Additions Most new coking additions will be in Canada, Mexico, the Middle East and China.
Ample volumes of 0.5% S bunker fuel are likely to be available in 2020 through blending of distillates
Current projections indicate a surplus of 1.0 million BPD of high sulfur resid in 2020
The rate of coker refinery additions is increasing but is still below necessary levels to balance 2020 requirements
0.5%S bunker prices (relative to crude) likely to increase in 2020
High sulfur resid prices (relative to crude) likely to decrease in 2020.
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Conclusions
Bunker price spike in 2H2019 is likely as cokers come on stream
Distillate prices (relative to crude) likely to increase in 2020
Additional announcements of coking capacity increases are expected
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Conclusions (cont.)
