Weak gasoline margins are having an indirect but increasingly significant impact on supplies of International Maritime Organisation (IMO) compliant low-sulphur fuel oil (LSFO), Japanese refiner Cosmo Oil said.
Marine diesel will be a prime alternative to fuel oil as a vessel fuel when the IMO caps sulphur content at 0.5pc next year, in the process driving a significant chunk of high-sulphur fuel oil (HSFO) out of the bunker market. But while the price spread between the two fuels is an important factor for vessel owners, weakness in the gasoline market is playing an increasingly important supply-side role.
The IMO 2020 rules are having a significant and tangible impact on the oil market, Mitsuyasu Kawaguchi, general manager at Cosmo, said at the Asia-Pacific Petroleum Conference (Appec) yesterday.
The responses to this have taken three main forms, Kawaguchi said. He pointed to changes in the global crude slate, referring to rising demand for sweet crudes in place of higher-sulphur grades; the adoption of scrubbers, which reduce sulphur emissions; and moves to optimise refinery production.
Market trends that are not directly linked to the sulphur cap are having a surprisingly big impact on the IMO preparations. Light distillate margins have taken a significant hit this year amid slowing demand and rising gasoline exports from China. This has led to run cuts at regional residual fluid catalytic cracker (RFCCs) units, which use LSFO products as a feedstock to produce gasoline, freeing up more low-sulphur straight run fuel oil (SRFO) and low-sulphur vacuum gasoil for blending and use as IMO-compliant fuel.
The weak light distillates margins have led to rare LSFO exports from northeast Asian refiners in the second half of this year. Taiwan's private-sector Formosa Petrochemical, which is typically a net exporter of HSFO, offered several 0.5pc sulphur SRFO cargoes in July and August after cutting run rates at its RFCC.
Other regional refiners including South Korea's SK, GS Caltex and Hyundai Oilbank and Japan's JXTG have also reacted to weak gasoline margins by cutting their RFCC run rates, although it is unclear how much low-sulphur SRFO they sold.
Asia-Pacific refineries have around 7.2mn b/d of FCC or RFCC capacity compared to around 6.1mn b/d in the US, Kawaguchi. This sharply exceeds demand for LSFO as a marine fuel, meaning any global or regional shifts in RFCC rates could have a big impact on the market for IMO-compliant fuel.
Cosmo Oil is expanding the 29,000 b/d delayed coker unit at its 100,000 b/d Sakai refinery as part of efforts to meet rising demand for IMO-compliant marine fuel. The company said last year that it was aiming for three of the six very large crude carriers in its fleet to have scrubbers by 2020 to help meet the IMO requirements.
