Bitumen prices could rise on residue demand for cokers

Bitumen consumers will have to compete with refiners seeking heavy residues for new cokers currently under construction globally, potentially tightening supply and pushing bitumen prices up, Shell bitumen pricing manager Keith Stone told the Argus Europe Bitumen-Asphalt Conference in Porto, Portugal.

The biggest impact will be felt by road contractors seeking security of bitumen supply for use in long-term road and highway projects, but also by producers of roofing and industrial grades.

The process of refinery upgrading has already been underway for some years, and has being given a renewed impetus by the new International Maritime Organisation's (IMO) marine fuel rules requiring a global switch from high-sulphur fuel oil (HSFO) to maximum 0.5pc sulphur in bunker fuels in 2020.

Stone pointed to an anticipated 1.5mn b/d global jump in residue requirements for new cokers, which compares with global bitumen consumption of around 1.7mn b/d (100mn t/yr). Oil companies have also been upgrading their refineries with new hydrocrackers and solvent de-asphalting units, some of them cutting or halting bitumen production altogether.

The IMO sulphur cap will also result in a trend of rising production of harder bitumen penetration grades, further restricting supply of softer grades and thereby creating pressure for buyers of softer grades used mainly in the roofing and industrial sectors.

The trend away from softer grades has already been underway in Europe, especially at Rotterdam and Antwerp refineries that have in recent years halted bitumen production. It will accelerate as the massive global transition from HSFO to 0.5pc sulphur bunker fuels will result in a sharp rise in diesel demand, and will force up requirements for vacuum gasoil as hydrocracker feed, leaving behind heavier refinery residues to produce bitumen.

Referring to a "significant shock" to the global supply and demand picture for oil products, Stone pointed to estimates that the IMO rules will likely result in a 4mn b/d drop in residual fuel demand and a 3mn b/d jump in 0.5pc bunker fuel demand.

Despite the anticipated surge in diesel and slide in high-sulphur fuel oil prices linked to the IMO cap, Shell's analysis suggests that that price gap will begin to normalise within six months after the 1 January 2020 deadline. A full return to more normal long-term price relationships is more likely to take one or two years, based on current analysis.