US toluene and mixed xylene markets could start seeing the effects of the International Maritime Organization's (IMO) global sulfur cap in 2022, more than two years after the regulations were implemented.
IMO's sulfur cap, implemented on 1 January 2020, limits the sulfur in fuel oil used on ships operating outside designated emission control areas to 0.5pc. The previous cap was 3.5pc.
Refineries divert gasoil — which has a low sulfur content — to the gasoline pool from the fluid catalytic cracker to create the lower-sulfur fuel. US aromatics consumers feared the loss of gasoil as a feedstock would tighten US toluene and xylene supplies and boost prices. But less than three months after the new sulfur rule was implemented, refiners globally cut run rates as the coronavirus outbreak slashed global oil products margins and eroded refining economics.
Early in the Covid-19 outbreak, blend demand for toluene and xylene also fell amid widespread downward pressure on the gasoline market.
The US has been more of an importer of toluene since the third quarter of 2020, averaging around 40,000 tons (t) per quarter.
Adding to blend demand for toluene and xylenes is the US Environmental Protection Agency (EPA) removing testing requirements for aromatics content in reformulated gasoline at the start of 2021. It reduced the Reid Vapor Pressure (RVP) limit to 7.4psi from 7.8psi in summer-grade specifications and eliminated winter-grade specifications altogether.
The changes allow increased blending of high-octane, low-RVP components toluene and mixed xylene into gasoline. Should refiners decide to go this route and blend this high-octane gasoline, there will be a transition period of roughly one to two weeks. This will allow producers to adjust their refining processes to handle lower RVP toluene and mixed xylenes.
The impact of the EPA changes, like the IMO 2020 sulfur cap, has yet to be realized in the US aromatics markets, though, as gasoline demand still lags pre-pandemic levels. But as demand for aromatics returns to pre-pandemic levels, refineries could struggle to meet overall demand. Consumption of toluene and xylenes could return to normal levels within three to four months after the pandemic has subsided.
