Long-term Distillate Demand Uncertain

Some refineries are upgrading to make more distillate fuel

Refineries' production of higher-grade distillate marine fuels is likely to rise, but long-term demand for the low-sulfur fuels is uncertain, industry news site TradeWinds reports.

Refiners are making upgrades to increase the output of the more expensive fuels, including ExxonMobil's planned $1 billion investment in its Antwerp facility, to take advantage of growing demand.

Refineries in the former Soviet Union area may also spend close to $10 billion on similar investments, according to a report by research group GlobalData.

"Russia's tax and export-duty regulations have been adjusted to provide incentives for refiners looking to build upgraded units to manufacture cleaner, low-sulphur products and reduce their fuel oil output," said GlobalData analyst Carmine Rositano.

Driving the anticipated jump in demand is the requirement that ships use fuel with a sulfur content of 0.10 or less in European and North American emissions control areas (ECAs) starting in 2015, as well as the new 0.5 percent limit on sulfur worldwide, which is expected to start in 2020 or 2025 depending on the findings of an availability survey.

In the short-term, low-sulfur fuel is the most common way to adapt to the new rules, according to Concawe, an oil-industry analyst agency, but that could change in the future as uptake of scrubbers and liquefied natural gas (LNG) bunkers grows.

"These factors point to weak long-term demand prospects for low-sulphur marine fuel, which could lead to progressive under utilisation of any new investments in process unit capacity dedicated to its production," Concawe said in a report.

"Such uncertainties could make it difficult to economically justify additional refining investments."

Rolls-Royce Marine Vice President Oskar Levander recently said decisions about fuel choice are growing more complex as new emissions rules take effect