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Market Reporting
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Events
IMO 2020The impact of changes in the quality of marine fuels on African refining
ARA week, Cape Town
James Gooder13th March 2017
Copyright © 2017 Argus Media group. All rights reserved.
• The global fuel oil market
• Solving the LSFO availability problem
• Refining landscape and clearing
surplus FO
• Fuel oil balance post 2020
• Consequences/opportunities in Africa
IMO 2020 – Driving global change
Copyright © 2017 Argus Media group. All rights reserved.
Argus’ sub-Saharan African refined product prices
Gasoline delivered West Africa $/t
Diesel delivered West Africa $/t
Jet fuel delivered West Africa $/t
Jet fuel delivered Durban $/t
Copyright © 2017 Argus Media group. All rights reserved.
Argus’ African bitumen prices
Nigeria
Côte d’Ivoire
South Africa
Alexandria
Dar Es Salaam
Ghazaouet
Takoradi-Tema
Rades
Morocco
Mombasa
Copyright © 2017 Argus Media group. All rights reserved.
Argus’ African marine fuel prices
Gasoil bunkers and fuel oil bunkers 180 and 380 cst dob Canary Islands
Gasoil bunkers and fuel oil bunkers 180 cstdob Durban
Gasoil bunkers and fuel oil bunkers 180 cstdob Cape Town
Copyright © 2017 Argus Media group. All rights reserved.
Watching the spreads
illuminating the markets
Global fuel oil Marine bunker fuel is half of global fuel consumption
2020 Fuel Oil Demand
Copyright © 2017 Argus Media group. All rights reserved.
Bunkers
Copyright © 2017 Argus Media group. All rights reserved.
• Switch to complying fuels
oDesulphurised fuel oil produced in refinery
oBlended 0.5% fuel oil from LS VGO, LS Heavy
gasoil + LS crude
oMarine gasoil
• Exhaust gas cleaning and NOx abatement –
‘scrubbing’
• Alternative fuels: LNG, methane
• Non-compliance
Solving the 0.5% fuel oil availability problem
Copyright © 2017 Argus Media group. All rights reserved.
Refinery upgradingDirectionally right driver, covering reduction in inland demand
• 3mn b/d of coking and cracking capacity under construction
• diesel/gasoil oversupplied by 45mt/yr (1mn b/d) after 2020 (excluding
IMO effect)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
2015 2016 2017 2018 2019 2020 2021 2022
million b/d
Global investments in upgrading capacity - firm projects
Hydrocracking FCC Coking
— Argus Consulting
Copyright © 2017 Argus Media group. All rights reserved.
Scrubbing economics
• Forecast gasoil-fuel oil differential ~$321/mt• Scrubber investment cost $3-8mn, payback 1 year• Scrubbing is in direct competition to residue destruction projects
post 2020
2016 Average Price Spread (169 USD/t) 2020 Forecast Price Spread (321 USD/t)
Copyright © 2017 Argus Media group. All rights reserved.
Fuel oil 0.5% balance in 2020
• MGO demand increases by 100mn t, only half is currently available
• Surplus fuel oil approx 100mn t
Copyright © 2017 Argus Media group. All rights reserved.
Price effect – FO/GO forecast
• Significant price move pre 2020
• Differential narrows as refinery investment and low sulphur programmes increase
• Scrubbing becomes direct competitor to refinery investment
Phase 1 Phase 2 Phase 3
Copyright © 2017 Argus Media group. All rights reserved.
Powergen – the sink for surplus FO?
• FO was 3% of global powergen feedstock in 2015, 6% in 2005
• 50mn t shifted from FO to gas and diesel since 2005
• Move fuel oil burning onshore – associated ecological issues
0
50
100
150
200
250
300
2005 2014
mtoe Global Power Generation by fuel type
Crude Oil Other oil products Gas/diesel oil excl. biofuels (kt) Fuel Oil
— Argus Consulting
Copyright © 2017 Argus Media group. All rights reserved.
ME and Indian subcontinent powergen potential
• Pakistan and India almost exclusively use coal and natural gas for power generation
• Demand 350mn toe per year
0
50
100
150
200
250
300
350
400
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
mtoe
Power generation by source: India and Pakistan
Other oil products Gas/diesel oil excl. biofuels (kt) Fuel Oil Natural Gas Coal
— Argus Consulting
28 33
15
3811
31
0
20
40
60
80
100
120
2005 2014
mtoe Power generation by source: Middle East
Crude Gas/diesel oil excl. biofuels (kt) Fuel Oil
• ME could switch 30mn t of direct crude burning to FO
• ME becomes import region for FO
Copyright © 2017 Argus Media group. All rights reserved.
Russia powergen – will it reverse the trend?
• Russian consumption of fuel oil in power generation has fallen by 58mn t over the past 25 years
• Investments have been made to move to use natural gas
• Investment is needed to reverse demand
• Contrary to refinery upgrade policy
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
kt
Russian fuel oil consumption - heat
and power plants
— IEA
Copyright © 2017 Argus Media group. All rights reserved.
Africa – the world’s sulphur sink
• More lax sulphur specifications in Africa mean that status quo = high quality out, poor quality in
• Premium on sweet crudes, cheap sour products mean that status quo is tempting, but negligent
• IMO is a test of Africa’s will to change
Copyright © 2017 Argus Media group. All rights reserved.
Opportunities for African refiners
• Refining low sulphur African crudes on the continent -ability to produce on-spec LSFO for global bunker market
• More profitable to do so or to sell components?
• Surplus fuel oil – an alternative to gas for refinery heating?
• Upgrading – anyone who can destroy fuel oil is a winner
• Africa, feedstock producer for the world – is it possible to becoming a finished product producer?
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