From the Houston Chronicle

As the global refining industry readies for the shipping industry’s shift to cleaner-burning marine fuels, analysts are warning that not all refineries are ready for what could be one of the biggest regulatory shocks to the refining industry in decades.

While the shift could force some refineries abroad to close in the wake of a glut in heavier bunker fuels, most U.S. refineries will escape that ill fate, analysts speaking at the American Fuel and Petrochemical Manufacturers conference in San Antonio said this week.

The International Maritime Organization low sulfur fuel mandates, set to take effect in 2020, will force shippers to burn low-sulfur bunker fuels in effort to curb pollution.

That will have a ripple effect on the entire refining industry, as demand for low-sulfur fuels, diesel, marine gasoil and lighter crude oil spikes. As the world moves to low-sulfur fuels, market for heavy sulfur bunker fuels is expected to dry up, with demand dropping to 1.8 million barrels a day from 3.5 million barrels a day now.

LOCAL IMPACT: Huge shift to cleaner fuels a jackpot for Texas energy 

It is projected that the market will have a 40 percent excess supply of high-sulfur bunker fuel, said John Mayes, vice president Dallas-based consulting firm Turner Mason, speaking at AFPM’s conference on Monday.

It still isn’t clear where the glut in high-sulfur fuel will go. While some have speculated the power industry could eat up some of that higher sulfur fuel, that demand wouldn’t be enough to absorb the excess supply. Utilities in the U.S. and Europe can’t burn the heavier bunker fuels because of environmental restrictions.

Most refineries making bunker fuels now can only store up to 10 to 30 days’ worth of production in storage tanks, Mayes said, so refineries without a clear customer for their excess bunker product could quickly run out of storage space.

Storage constraints could force some refineries to either drastically cut production or shut down temporarily in early 2020 as the new rule takes effect, he said. This will likely impact refineries in Europe and Asia, which produce the bulk of the world’s bunker fuels.

“They don’t have the ability to store for months,” Mayes said. Speaking to a crowd of refinery professionals at the AFPM meeting, Mayes showed a picture of a man holding a dynamite before it explodes and noted that most refineries say they are taking a “wait and see” approach that is akin to holding a dynamite.

NEW MARKETS: More ships to rely on LNG as pollution rules tighten 

“A lot of refineries are placing themselves at the mercy of the market … they don’t have a credible plan as to how they’re going to react,” he said.

As demand for high-sulfur fuel drops by as much as 60 percent, there will likely be a shortage of diesel and marine gasoil on the market that could push up prices by a fifth, assuming a significant level of non-compliance, according to IEA.

In a casual survey of the packed room of refining professionals at the conference, another analyst with IHS Markit asked the crowd to raise their hands about whether IMO 2020 would have a small, medium or major disruption to their industry. Most audience members said they thought it would be a medium to major disruption.

While questions about the rule’s impact abound, major refineries have been preparing for months for the rule change, testing out new low-sulfur bunker fuels and in the case of Exxon Mobil, adding additional coking units at its Antwerp, Belgium, refinery to better process heavy crude into low-sulfur fuel. And in the U.S., the refining industry is expected to experience a boom from the rule change, particularly on the Gulf Coast. The chief executive of the biggest refiner, Marathon Petroleum, recently touted his industry’ readiness for the rule change.


Legal Notice