MOSCOW (MRC) -- Over the last four decades, refiners have had to adjust to a relentless stream of changes in product demand patterns and ever-more-stringent environmental regulations, as per Hydrocarbonprocessing.
Making the adjustment takes time and requires a good assessment of the potential future scenarios. We had the unleaded gasoline mandate, followed by the introduction of oxygenates to gasoline. Next, came the trend for ultra-low levels of sulphur in diesel. Then, over the last 10 years or so, the momentum in dieselisation, changing crude slate and the need for tighter integration with petrochemicals have given refiners even more new things to think about.
Each time, refiners have displayed remarkable flexibility in reconfiguring their facilities and operating strategies. And now, further challenges lie ahead. Two in particular will have a profound impact on refiners.
First, we have the International Maritime Organization’s (IMO) MARPOL 73/78 Annex VI (IMO 2020) on the horizon, which will cut the allowable sulphur content of marine bunker fuel from 3.5 to 0.5%. Achieving full residue conversion is likely to be extraordinarily capital intensive and might not be necessary anyway, but cost-effectively reducing fuel oil exposure is almost certainly a good idea, as it has a clear link with competitiveness.
Secondly, a global energy transition is under way. One element of this is that we are starting to see battery electric vehicles gaining consumer acceptance. Worldwide, about 50% of refinery output is directed towards road transportation fuels, so any substantial moves towards electrification have significant potential to reduce demand for diesel and gasoline.
Disruption N1 - IMO 2020: Although clean air concerns have driven the IMO 2020 legislation, it is not necessarily a compliance issue for refiners.
After 2020, ships that are not fitted with scrubbers will not be able to use high-sulfur fuel oil. However, that does not mean that refiners will not be able find outlets for it, especially as about 50% of the current high-sulfur fuel oil market is not marine fuel so will not be affected by the IMO regulations. In addition, there will be a limited number of ships fitted with scrubbers that can process it. Alternatively, other refiners that have spare residue conversion capacity may take it – but at a price.