IMO 2020: Demand for refinery feedstock VGO to rise

IMO 2020: Demand for refinery feedstock VGO to rise

Demand for vacuum gasoil (VGO), a distillate fuel grade used in blending, is likely to increase in the run up to 2020 although that demand will be tempered by the relative value of other products in the refining process, price reporting agency SP Global Platts has said.

VGO typically has 0.5% to 0.6% sulfur content for low sulfur VGO and 2% for high sulfur VGO with both grades a good fit to blend down fuel grades with a higher sulfur content.

Read the full article here

WHEN WILL THE DEMAND FOR HSFO DROP OFF?

The global sulphur cap comes with so many side issues – scrubbers, insurance and compliance – that ship owners and operators will need to be on their toes well before the regulations actually come into force on 1 January 2020. The lack of compliant fuel has always been seen as a major stumbling block in the short-term; where will the bunkers be that can offer this fuel and when will it be widely available? We have looked at this issue before: ships being stranded because lack of compliant fuel and concerns that some ships might have to use non-compliant fuel if there is an initial shortage – all these are worries ship owners and operators will face in the early stages of the compliance changeover.

One pressing thought: when will the demand for HSFO drop off? This will happen at some stage in 2019 and then the other question is – when do you start cleaning your tanks ready to accept the new fuel? Bunkering is the issue and so is the refining process. The demand for new fuel will almost certainly be high in the latter part of 2019 and the first month of 2020. The refining process and production of low sulphur fuel is placing demands on both sides of the industry. The trick for ship owners and operators is making the date for transition work in terms of cost and operational supply.

Recent report have suggested African bunker fuel markets could struggle to implement the IMO sulphur cap and the suggestion is this could be down to extensive competition from Mediterranean ports and the question of marine fuel quality. Once again the question of quality of the product rather than the initial price is the issue. Availability and compliance are not always natural bedfellows in any industry but when it comes to the 326 million cubic miles of ocean, the world’s ships are expecting more than a sign saying “No Fuel Today!”

S.Korean refiners aim to benefit from 2020 shipping mandate

Refinery industry

Refiners in South Korea are planning to invest more than $5 billion in plant upgrades due to the 2020 global sulphur cap. The refiners expect to become one of the biggest beneficiaries of the new regulations whilst many competitors are still waiting to commit to new investments. According to Wood Mackenzie analyst Suresh Sivanadam, the changed regulations are leading to a rise in demand for gasoil from the bunker sector and would push other refiners to look at investments or blending to meet demand.

Read more here: Hellenic Shipping News

Fuel availability under the 2D scenario

Oil refinery

While the debate about how to meet the requirements of the IMO’s global sulphur cap continues, a new influence factor for future fuel availability has appeared in a recent report by independent think tank Carbon Tracker.

A quarter of global refining capacity could become unviable and be forced to close by 2035 as a swelling tide of climate regulations and rapid advances in clean technologies cut oil demand, finds a report launched in November 2017 by Carbon Tracker.

In this report, they look at how a scenario for oil demand that is compliant with limiting the rise in global warming by 2035 to 2°C (a “2D” scenario) might affect the oil industry’s refining assets. Under a 2D scenario, global oil demand could decline by 23% over a 15 year period.

As the past has shown, falling or weak demand has often come along with poor refining margins. To put it concisely: lower oil volume means less refining capacity means smaller margins. As a result many industry players might be forced to exit the market.

Furthermore diesel, gasoline and jet fuel products bring the highest margins across the product mix for refineries and also constitute around 70% of global product yield. The industry may not be prepared for the rate of technological change in road transport with the result that demand for these fuels could erode faster than expected. As road diesel competes with lighter marine fuels, a weak demand could either support more availability for shipping or the completely opposite, if refiners decide to close their refineries.

The shipping industry could be affected as follows: As a lack of investment in refineries could result in a lack of desulphurisation, the capacity for compliant fuel in 2020 may get even tighter.

How should refineries react to the changing conditions?

Read the report here or the press release here