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Trends for Refining Residual Fuel Oil Prepared for Bunker Asia Forum 2011 Singapore – 7 September 2011
Trends for Refining Residual Fuel Oil
Prepared for
Bunker Asia Forum 2011Singapore – 7 September 2011
Bunker Asia Forum 2011 2
Agenda
Introduction
Refiner View of Bunker Fuel
Product Quality
Crude Oil Influences
Likely Refining Industry Outcomes
Bunker Asia Forum 2011 3
Purvin & Gertz, Inc.Technical, strategic and commercial advisory services for the global energy industry
Energy Market Analysis
Refinery/Asset Valuations
Technology Evaluations
Crude Oil Marketing
Project Finance Assistance
Independent Engineer
Conferences/Training
Core Competencies
Bunker Asia Forum 2011 4
Bunker fuel is a money loser for the refining industry.
Bunker fuel sells for less than crude oil
Refiners can make money only by producing products that sell for more than crude oil.
Refining investment goes to manufacturing profitable products.
Why do refiners produce any bunker fuel at all?
-350
-250
-150
-50
50
150
250
350
450
Jan
-05
Jul -
05
Jan
-06
Jul -
06
Jan
-07
Jul -
07
Jan
-08
Jul -
08
Jan
-09
Jul -
09
Jan
-10
Jul -
10
Jan
-11
Jul -
11
$/MT
Gasoline Less CrudeJet Less CrudeDiesel less CrudeBunker less Crude
Bunker Asia Forum 2011 5
World Fuel Oil
A serious imbalance exists in the bunker fuel contained in crude oil and the amount demanded by consumers.
Refiners respond to this imbalance by destroying bunker fuel and in the process making more light products.
0
1,000
2,000
3,000
4,000
5,000
6,000
1995 2000 2005 2010 2015
MTPD
Resid toDestroy
Bunker(FO)
Fuel Oil
Bunker Asia Forum 2011
0.0
1.0
2.0
3.0
4.0
5.0
2005 2010 2015 2020 2025 2030
Global
ECA
6
IMO sulfur regulation timeline
% Sulfur, max
Study in 2018 determines availability of LS fuel and start date for 0.5% S limit
Pending changes in bunker fuel specifications could have huge refining industry impact.
If the shipping industry responds by demanding low sulfur fuels, then the refining industry can manufacture them—for a price.
• Enormous investment would be needed and time required.
If the shipping industry responds with heavy reliance on scrubbing technology then refiners will need to do little or nothing.
Bunker Asia Forum 2011 7
Reduction of bunker fuel emissions is a complex inter-industry issue
Requires low cost fuel – very competitive market
Resists capital and added complexity of scrubbers
Facing complex regulatory environment
Uncertain ECA and global regulation schedule
NOx, PM and perhaps CO2
Bunker has traditionally been a low-value by-product
Difficult to envision investing for bunker production
Stranded investment risk if emissions technology evolves
Concerned with magnitude of investment required
Needs clear signal from fragmented shipping industry on fuel requirements
Shipping Industry Refining Industry
Bunker Asia Forum 2011 8
Refineries have different options to produce the new ECA and new LS bunker fuels
Refining analysis completed to estimate production
cost for a range of options
Sour and sweet crude refining ranging from simple to complex
configuration
Incremental production with existing equipment and
considering FCC shutdowns
Capital investment in coking, residue hydrotreating and other
routes
Regional analysis considering cost of hydrogen and utilities in
different regions
Bunker Asia Forum 2011 9
Refineries have different options to produce the new ECA and new LS bunker fuelsUS Dollars per Metric Tonne vs. HS Fuel Oil
0
100
200
300
US Gulf Coast N.W. Europe Singapore Middle East
Sour Residue Hydrotreating Sour Cracking ReconfigurationMDO Coking MDO/SDA CokingSweet Crude Residual Sales Diesel PriceLow Sulfur VGO Sales Sour VGO Hydrotreating
Bunker Asia Forum 2011 10
Capacity Additions 1998-2008 - Million Barrels per Day
Residue hydrotreating has been added in Asia but most upgrading capacity has been coking and cracking
0
1
2
3
4
5
Residue HDS Coking FCC/HCU
Other
Europe
U.S.
Middle East
Asia
Bunker Asia Forum 2011 11
Bunker market is large enough to shift price relationships
Currently, LSFO-HSFO spread is small compared to diesel-HSFO
LSFO demand today is small relative to bunker
Adding LS spec to bunker fuel will increase LSFO-HSFO spread
LSFO might move from being a “HSFO plus” product to more of a “diesel minus” product
Relative Pricing
Current Situation
HSFO
LSFO
HSFO
LSFO
MGO/MDO
MGO/MDO
ComplianceScenario
Bunker Asia Forum 2011 12
Bunker quality changes will impact refining, bunkering and shipping industries
Regional impact in the ECAs is most immediate but global changes are more significant
Residue upgrading or desulfurization required – level of investment depends on ship-based scrubber adoption
Refineries have alternatives to low sulfur bunker production – i.e. transportation fuels
Ship owners face fleet investment or significantly higher fuel costs through gasoil purchases
Complex inter-industry issue
What fuel quality is needed?
Who invests?
What new blending streams are available?
How do these move through the supply chain?
Bunker Asia Forum 2011 13
This analysis has been prepared for the sole benefit of attendees. Any third party in possession of the analysis may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of the analysis does not carry with it the right of publication.
Purvin & Gertz conducted this analysis utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.
Some of the information on which this analysis is based has been provided by others. Purvin & Gertz has utilized such information without verification unless specifically noted otherwise. Purvin & Gertz accepts no liability for errors or inaccuracies in information provided by others.
About this presentation…
John H. VautrainSenior Vice [email protected]
Purvin & Gertz, Inc.69 Duxton RoadLevel 3Singapore 089528Tel: +65-6227-2758Fax: +65-6227-2753
S5870 – BunkerWorld – Sep 2011 - SIN
www.purvingertz.com
