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Tuesday, September 25, 2018

Considerable investments needed to remedy projected LSFO/HSFO imbalances


At the second Annual Trading and Bunker Conference arranged by Vostoc Capital, Roy M. Jordan from Energy market Consultants presented his views on the marine bunker market.


He showed that the price of High Sulphur Fuel Oil (HSFO) marine bunkers has been USD 12.5 to USD 15 per barrel over the last couple of years, but he expected this margin to gradually decline to some USD 7.5 in 2010. The price difference for Low Sulphur Fuel Oil (LSFO) marine bunkers has declined somewhat to some USD 5 per barrel, but the gap is expected to widen to some USD 7 to USD 8 per barrel by 2010.


Various crude oils yield a different product mix and sulphur content.

The refiners’ options for disposing of fuel oil are in general:

1.          cracking/conversion to light or middle distillates;

2.          inland sales to power stations - mainly low sulphur fuel oil (LSFO);

3.          marine bunkers - mainly high sulphur fuel oil;

4.          destruction/coking.


The market for the first option is declining whereas the market for marine fuel is increasing.  One problem is that quality is not just related to sulphur content, and a great deal of the LSFO contains heavy abrasive metals and does not have the viscosity needed for marine fuel.  In connection with switching there may also be compatibility problems. 


The demand for LSFO marine bunkers is expected to more than double from 3 million tonnes (m ts) to 7 m ts in connection with the introduction of the second SECA in the North Sea August 2007.  Europe will have to compete with the U.S. for African and S. American supplies.


According to Energy Market Consultants, accessibility to low sulphur fuel oil may improve in the short term, and some of the non-OPEC crude coming on the market is low sulphur.   However, in the longer term the situation will deteriorate for low sulphur crude oils as the Middle East crude will gain market share.  The current deficit of LSFOs is estimated to be close to 0.5 mbd but it is projected to increase to some 1.02 mbd in 2010. There is on the other hand today a surplus of HSFO of close to 1.0 mbd in the world, which is estimated to decline to some 0.5 mbd in 2010. The figure for Europe is a deficit today of both LSFO and HSFO of 0.08 mbd and 0.34 mbd respectively, which is projected to increase to some 0.38 mbd and 0.3 mbd respectively.


The export of HSFO from Russia is expected to decline as it will be needed for new large aluminium plants soon to come on stream. Petromarekt expects Russian HFO export to decline from a peak of 40.2 m ts in 2005, 38.1 m ts in 2006, and between 33.2-34.8 m ts in 2010 (cautious and optimistic scenario).


The United States is the area with the largest LSFO deficit and needs some 12 m tonnes, which it takes mainly from South America (50%), which has a surplus of some 6 m ts. Africa has a surplus of some 8 m ts, Russia 1 m ts, and North Europe 2 m tonnes, whereas Mediterranean Europe has a deficit of some 5 m tonnes of LSFO, according to Channoil.


The option for refiners to resolve these fuel imbalances are:


  • Increase processing of low sulphur crude oils
  • Reduce crude runs to limit production of LSFO
  • Invest in conversion units to reduce HSFO
  • Inter-regional and intra-regional trades of LSFO/HSFO
  • Invest in residue desulphurisation - expensive
  • Converse with governments on timing and implication of SECAs
  • Develop crude mission trading
  • Joint ventures with end users on desulphurisation


M. Jordan concluded there is a lack of co-ordinated legislation and that considerable investments are needed to remedy projected LSFO/HSFO imbalances, but that it is not clear who would bear the costs.


Erik Ranheim made a presentation on tanker performance as well as Revised Annex VI implementation.  He questioned whether it would be easier for the 100+ refineries around the world to adapt to the new LSFO requirements or the some 50,000 ships. The current situation is both fragmented and unpredictable and an uncomplicated, long-term solution that can benefit the environment as well as be practicable for the industry is called for.  Click here to view his presentation.


Contact: Erik Ranheim