European Refiner Varo Energy 'Not in a Frenzy' over Post-2020 Fuel Oil Market

Thursday December 7, 2017

European refining and oil products storage company Varo Energy has said it has sufficient flexibility to deal with the expected changes in demand for fuel oil come 2020.

The company, which owns the 68,000 barrels per day (b/d) Cressier refinery and has a 45% stake in the 210,000 b/d Bayernoil refinery, told price reporting agency Argus Media that its units were ready to deal with the changes.

"We have, for a while, been working on effectively reducing fuel oil in our refineries," said Norbert Kamp, Varo's managing director in Germany.

"From that perspective we are already quite well-positioned to deal with the changes. And the remaining fuel oil that we have, we can optimise in our existing, regular business that we do, for example here in Hamburg. So we are not really in a frenzy about it.

"We will continue to sell our existing high sulfur spec fuel oil, but we are also ready when, let us say, more diesel comes into the mix or more distillates get sold directly to shipowners."

Kamp said that even though the final outcome of its own impact study has yet to be delivered, the company is in a good place.

"Considering we have already reduced fuel oil output significantly, we are quite well positioned.

"We do not envisage a huge amount of upgrades in the refineries, either in Cressier or in Bayernoil. We already have a huge amount of flexibility that we can use."

Kamp said that the company is not "going into overdrive and thinking that 2020 is going to come and we need to invest x-million dollars".

The Cressier refining unit, which is based in Switzerland, supplies bunker fuel to Hamburg, market sources in the German port confirmed.

Patterns of demand for bunker fuel are expected to change considerably once the 0.5% global sulfur cap on bunker fuel comes into force. Market observers say demand for distillates will increase while demand for high sulfur fuel oil will fall. However, it is unclear by how much that will while the impact on pricing is also unclear.