IMO2020: RAI 2020 Marine Fuel Availability Study Re-Boot

Ara Barsamian, president and CEO, Refinery Automation Institute LLC (RAI).

With less than 4 months remaining to IMO 2020 deadline, the blogosphere is full of rumors, innuendos, and sometimes outright rebellion, like Indonesia's decision to ignore temporarily IMO 2020 for internal consumption.

The BIG question is, what will be available as 2020-compliant marine fuel? Meeting what specs? At what price?

We decided to take a fresh look at our December 2017 study and update it with latest publicly available information.

Here's what we found out:

There will be plentiful Marine Gas Oil (MGO) at a premium over the current 3.5%S IFO 380 of about $200 to 300/MT, with possibly a higher peak price in mid-2020

There will be a "moderate" amount of VLSFO (very low sulfur "residual" fuel oil); the price will be $40 to $80/MT less than MGO. But the big problem will be the variability of VLSFO properties, particularly viscosity, which will span a range of 20-30cSt to 120cSt to 320-380cSt. In addition to usual fears about stability and compatibility, the big headache will be thermal shocks and leakage around pistons…

And finally, 3.5%S HSFO is not dead as the avalanche of scrubber orders are overwhelming manufacturers…and finding a home is not as big an issue as feared…just dilute it with ULSD or cheaper 0.1%S ECA MGO.

A summary of the finding is in Table 1 below.

The 2020 availability picture is complicated because:

1. Most of the world's refiners are changing their crude diets by using blends of LS crudes in anticipation of IMO 2020, so atmospheric and vacuum bottoms are around 0.4 to 0.8 %S. With LS, there is a premium for LS crudes unless one uses shales (low Sulfur but lower yields of resid). In any case, it will cost more.
2. If VLSFO spans 30cSt to 380cSt, for 30 to 50cSt VLSFO range, the available amount doubles by using more readily available LS gasoils but at higher costs
3. Finally, a very important consideration is the use of low Sulfur crudes either as blend components or directly as VLSFO. Almost 50% of the world's crudes are 0.8% or less, and eminently suitable for making VLSFO.

Study Methodology

The input for the availability study was the Oil & Gas Journal refining database [1] [2] combined with typical refinery LP models (US, EU, and APA models) to determine process unit yields, e.g. ATM/VAC resid yields, LAGO/HAGO, VGO. FCC LCO and slurry, coker gasoil, etc.
We have done this for three distinct refining regions:

• USA, which has many delayed cokers, the main source of MGO, and many large FCC's producing copious amounts of LCO and slurry
• EU, which has the largest amount of Visbreakers, producing low sulfur visbreaker tar, the main ingredient in residual bunkers
• Asia-Pacific Area (APA), which has a mix of conventional refinery units and resid desulfurization

For each region, we used the aggregated process unit capacities and refining yields to estimate the production of ATM/VAC/VBK resid, AGO, VGO, VB GO, CKR GO, LCO, Slurry, etc. Examples are illustrated (partially) in Table 2]:

Click to Enlarge

...and Table 3

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We have also determined the availability of low Sulfur crudes in the 3 geographical regions [3]:

• USA LS crudes, including shale crudes, LLS, Cushing WTI, imported Nigerian…
• EU LS crudes from the North Sea, e.g. Brent, imports from Libya, Azeri Light, West African LS crudes…
• APA LS crudes mostly from Indonesia and Malaysia

We also used typical recipes shown in Table 4 for making a variety of VLSFO spanning 20cSt to 380cSt to determine how much MGO, VLSFO, and HSFO can be produced [4].

Other Considerations

Equally important as calculation of refining marine fuel production capacity is "Market Sentiment" or psychology.

It is widely assumed that all the procrastinators who did not prepare adequately (refiners, blenders, oil terminals, shipowners) will pay a high price between October 2019 and October 2020 because there will be an artificial "peak" demand of MGO [5][6] – the temporary  easy but costly way out -  until the VLSFO and scrubber markets shake out. 

Table 5: Platts Price Predictions for of 0.5 WT% Sulfur IFO380 vs. MGO [5, 6]

All the refiners that have cokers will make a "killing" temporarily, with premiums soaring to $300 to $400/MT above current HSFO, but it is doubtful this will continue long enough to justify the initial coker projects ROI.

Conclusions

The market will have adequate 2020-compliant marine fuel, whether MGO, VLSFO, or HSFO for scrubbers. The price range will vary widely, depending on the geographical location, supplier production capability, and fuel specs.

The proliferation of fuels, particularly ones claimed to be IMO 2020-compliant VLSFO will require  extra vigilance to ensure the fuel quality is "fit for purpose" per ISO 8217-2017.

References

[1] "OGJ Worldwide Refineries – Capacities as of Jan.1, 2017." Oil & Gas Journal, December 5, 2016, 1–2. https://www.ogj.com/ogj-survey-downloads/worldwide-refining/document/17299940/2017-worldwide-refining-capacity-summary
[2] "OGJ Worldwide Refineries Survey: Global" Oil & Gas Journal, December 5, 2018, 1–2. https://www.ogj.com/ogj-survey-downloads/worldwide-refining/document/17299950/2018-worldwide-refining-capacity-summary
[3] Barsamian, Ara, and Curcio, L.E. "Bunker Fuel Blending Course 2020 Edition" – Singapore, 2017, n.d.
[4] Barsamian, Ara, and Curcio, L.E.  "IFO380 Recipes Can Meet 2020 Reduced-Sulfur Bunker Regs." Oil & Gas Journal, January 1, 2018, 22–24.
[5] Brown, Beth. "US Fuel Oil in 2020 and Beyond: Clean Fuel, Cloudy Prospects." S&P Global Platts: Platts Bunker Conference-Houston, June 12, 2019.
[6] Joswick, Richard. "IMO 2020 will make waves-but will they be Ripples or a Tsunami?" S&P Global Platts: Platts Bunker Conference-Houston, June 12, 2019.