Viewpoint: Midcon refiners readied for IMO rules

Refiners in the US midcontinent appear well-positioned to take advantage the arrival of new International Maritime Organization (IMO) sulphur regulations in 2020, having performed extensive maintenance on distillate-producing units during this fall's turnaround season.

The regulations, which will restrict the use of high-sulphur marine fuels, are expected to boost demand for middle distillates. This demand will drive investment into more complex facilities as refiners seek to minimize heavy product production in favor of these lower-sulphur fuels.

With the rules already pressuring the global distillates market before coming into force, midcontinent refiners are preparing their facilities to run full-out. These refiners, experienced in maximizing the production of valuable low-sulphur products out of otherwise heavy, sour crude grades like Western Canadian Select (WCS), are expecting to reap the benefits of their past investments in complex refining capacity as these changes come into effect.

With an eye toward minimizing the need for maintenance through 2020, refiners in the region cut crude distillation unit (CDU) utilization to its lowest in more than eight years during this fall's turnaround season, taking more than 1mn b/d of capacity off line for repairs. Regional crude inputs into refineries sank to a three-year low.

Refiners' emphasis on preparing their distillate-producing units for the upcoming changes is highlighted by persistently high gasoline production throughout the turnaround season. Gasoline and blendstock producing units, not captured in the EIA's utilization measure, continued to operate at full capacity, ballooning inventories and depressing prices.

While these moves will help position midcontinent refiners ahead of the IMO rule change in 2020, they are just one part of a broader strategy meant to expand the region's role supplying the rest of the country. Hoping to leverage the region's access to discounted crude, some refiners are seeking to push into markets traditionally served by increasingly export-focused US Gulf coast refineries. These attempts to access more profitable eastern markets have drawn the ire of some more established players in the region, and companies have faced regulatory hurdles trying to secure the infrastructure necessary to make this move possible.