No going back to fuel oil: ConEdison

Cheaper residual fuel oil prices will not lead to a resurgence in oil burn and US utilities plan to adhere to current emissions restrictions, senior planning analyst Peter Alexander at Consolidated Edison (ConEdison) told delegates at the Argus Fuel Oil & Feedstock conference in Miami.

Future implementation of new marine fuel market regulations has been expected to reduce demand for residual fuel oil for bunkering, placing downward pressure on fuel oil prices. But ConEdison, which provides gas, steam and electricity to customers in New York City and the surrounding areas, expected natural gas consumption as well as investments in renewable energy to meet future demand.

"Economics do not drive the show," said Alexander, who believed environmental regulations and auditors played a larger role in the company's decision-making process.

In addition to regulatory restrictions, utilities face technical challenges to burning fuel oil. Utilities' boilers require a load reduction to switch between fuels, raising the risk of a power trip. And an aging utility workforce has led to new hires with little experience in working with fuel oil.

The company's residual fuel oil consumption, in the form of 0.3pc sulphur high-pour fuel, has gradually declined from about 1mn bl in 2009 to a projected amount of less than 200,000 bl in 2016.

Until 2012, cheap natural gas prices drove ConEdison's demand. The utility also burns ultra-low sulphur kerosene in addition to fuel oil.

Market economics since 2013 "should [have increased] fuel oil demand, but fundamentals [were instead] impacted by environmental regulations," Alexander said.

In 2014, the company saw large spikes in natural gas prices, upwards of $120/mn Btu. And while oil prices have fallen closer to those of natural gas, environmental restrictions have impeded utilities from burning oil.

As a result of the increase in natural gas burn in lieu of fuel oil, the company's emissions have declined. Sulphur dioxide emissions declined from 6.0mn t in 2009 to 3.5mn t in 2014, nitrogen oxide release was down 2.4mn t to 2.2mn t over the same period, and carbon dioxide release was down from 2.3mn t to 2.2mn t.