Marine fuel rules not spurring refining capex
Houston, 8 November (Argus) — US refiners saw little need to invest in more coking or heavy feedstock processing capacity ahead of rules reducing the sulfur content of marine fuel.
Complex US refiners looked at smaller investments to take advantage of rules that limit marine fuel to 0.5pc sulfur beginning in 2020, executives said in quarterly earnings calls. Changes should drive up demand for diesel and drive down costs for heavier feedstocks.
"That ... has the potential to be a seismic shift," PBF Energy chief executive Tom Nimbley said. "Candidly, we are pleased with our portfolio and we are well-positioned to take advantage of it."
The International Maritime Organization will cap the sulfur content of fuel at 0.5pc, down from 3.5pc today, in January 2020. Vessels can install scrubbers to clean exhaust gases, convert to LNG or switch to lower-sulfur diesel to comply with the International Convention for the Prevention of Pollution from Ships (MARPOL).
The change will slash the current market for lower-quality fuels generated by refiners that lack the equipment needed to reduce sulfur from cheaper feedstocks.
The unprocessed material, called resid, could sell at a discount to refiners with the coking, sulfur treating and other costly equipment needed to produce clean fuels from the dirtiest feedstocks. The same refiners, meanwhile, expect even more demand for distillates.
Investments to take advantage of that dynamic should be small and quickly accomplished, executives said. US independent refiner Valero could early next year pursue projects to take advantage of the diesel and residuum spread. Marathon Petroleum planned smaller projects already underway to upgrade resid at its 585,000 b/d Galveston Bay refinery at Texas City, Texas, and 562,000 b/d refinery in Garyville, Louisiana.
PBF Energy could restart a 9,000 b/d coker idled by previous owners at its 190,000 b/d refinery in Chalmette, Louisiana.
"We think coking capacity is going to be very valuable given the clean-dirty spread that some folks, including all of you folks, are forecasting in a post-MARPOL world," Nimbley told analysts.
Not all US refiners expect a sea change.
"I know there is a lot of exuberance in the industry around the specification change," Phillips 66 chief executive Greg Garland said. "I think it is probably constructive in terms of diesel cracks, but I do not think it is going to be enough that it would incent us to make an investment."