Cepsa looks to embrace IMO bunker cap
London, 8 September (Argus) — Spanish refiner Cepsa is planning to expand further into bunker fuels ahead of the International Maritime Organisation's (IMO) 2020 sulphur regulations.
The IMO's global cap requires ships to burn marine fuels with a maximum 0.5pc sulphur content, or the installation of scrubbing technology to clean exhaust fumes, form 1 January 2020.
This poses a challenge for Cepsa, which is one of the largest suppliers of high-sulphur bunker fuels in the Mediterranean market. Of the 5mn t/yr of bunker fuels it sells globally, around 80pc has a sulphur content above 0.5pc and will consequently be non-compliant in just over two years' time. Cepsa is Spain's dominant supplier of marine fuels, with its 240,000 b/d Algeciras plant — situated by the country's busiest port — providing the bulk of the firm's bunker supplies. The refiner also sells fuel out of Fujairah, UAE, and the Balboa and Cristobal ports on the Panama Canal.
But Cepsa's managing director of marine fuels Alberto Martinez-Lacaci said the company will retain its position as a major bunker supplier beyond 2020, and will even expand its market footprint.
"Bunker fuels are a strategic product for Cepsa. That's why we are investing in products and innovative solutions for the new regulations. You may have heard… we started to supply ultra low-sulphur fuel oil (LSFO) in Algeciras bay this year," he told Argus.
"We are in contact with shipowners, trying to understand their position and what fuel they will use from 2020 in order to work out how much 3.5pc sulphur we need to produce, how much 0.5pc sulphur, how much distillate… By next year I believe we will have a clearer picture of the demand for different fuels."
If past form is anything to go by, Lacaci's confident words ring true. Cepsa invested heavily to produce 0.1pc sulphur marine gasoil (MGO) required by law since 2015 in the sulphur emission control area (ECA) of the North and Baltic Seas. The refiner also plans to expand its bunkering footprint in Fujairah, having already increased its monthly marine fuel supply at the port to 40,000-50,000t a month, and has engaged in a slew of minor bunkering projects, including a plan to supply RMK500 and LNG out of Barcelona. It has also partnered with Quadrise Fuel to produce an emulsified heavy fuel oil.
As to producing enough compliant fuel oil from 2020, Lacaci says Cepsa could shift its crude slate. The firm's crude imports typically include a mix of heavier crudes from Saudi Arabia, Iraq and Iran, as well as lighter west African and north African grades. Cepsa could also, Lacaci said, use middle distillates as a blendstock to produce 0.5pc fuel oil.
Cepsa is considering investing in a residual hydrocracking unit, used for converting heavy fuel oils into middle distillates. The company is in the basic engineering design phase for the unit and has yet to make a final investment decision. If it does go ahead, the project would likely cost close to $2bn, a potentially massive investment for the mid-sized refiner. Timing will be key: build the unit too late, and Cepsa could miss out on the wide spread likely to open up between high and low-sulphur fuel oil in the period immediately following the 2020 regulation, bringing into question the financial viability of such a high-cost investment.
The precise details of Cepsa's IMO 2020 strategy will inevitably depend on future bunker fuel demand patterns. Lacaci said the company is weighing up a number of scenarios, and while the situation is less than certain he does see more than 50pc of post-2020 bunker fuel demand being for 0.5pc sulphur fuel oil, at least in the immediate aftermath of the new legislation.
"Looking at the initial picture, we think 0.5pc will be the biggest consumed fuel because, first of all, you do not need any capital expenditure — which is something to be considered, taking into account the present situation of the shipping industry. And, it is a decision that can be reversed. You do not need to do anything to consume 0.5pc, so it is a low risk position," he said.
"MGO will probably see a small increase at the beginning and then we will see it coming back to more normal figures. And what's left [apart from HSFO demand], which is not much, will be LNG."
BP, in a recent presentation, expressed a similar view, forecasting around 60pc of bunker fuel demand in 2020 could potentially initially be met by LSFO, with marine gasoil taking a share of around 20pc. BP forecast the high-sulphur fuel oil (HSFO) share of bunker demand to ramp up during 2020-25 as more vessels installed scrubbers, reaching around 40pc by the end of the period.
Lacaci said a "significant" number of vessels will install scrubbers and consume 3.5pc fuel oil, although this will differ among vessel classes. He said scrubbers will be far more prevalent among cruise ships than container ships or bulk carriers. As a result, demand for 3.5pc sulphur fuel oil will be much higher in ports where cruise lines make up a significant chunk of demand.
Forecasts for bunker fuel consumption are being made more difficult by question marks over non-compliance, with one chartering firm recently declaring that even an 80pc compliance rate would be unrealistic.
"In our main markets we will not see much non-compliance," Lacaci said. "In Spain, Panama and already Fujairah, we are big hubs and plenty of compliant fuel will be available. The big ship owners — we understand they will all be taking compliant fuel oil."
"But is there going to be non-compliance in certain areas? At least in the beginning, probably yes. Whether purposefully or because there is no compliant fuel oil available," he said.
In the absence of an ISO specification for the new 0.5pc fuel, a variety of different compliant fuels will likely spring up in different regions, Lacaci said. Sulphur will be consistent, but density and viscosity could alter, depending on the crudes used and blending processes. Over time, the compliant fuels are likely to become more homogeneous.
While Cepsa's exact strategy remains unclear, the firm does appear confident it can transition from high-sulphur bunker fuels to compliant product. Across Europe, other refiners are investing in IMO related refining upgrades, the latest being Shell's 140,000 b/d Wesseling plant in Germany, which is looking to boost its desulphurisation of heavy residues.