IMO 2020 to lift US shale demand: Valero

New restrictions next year on the amount of sulfur in global marine fuels should lift export demand for US oil shale production, US independent refiner Valero said today.

Less complex European refiners would seek out the much lighter, sweeter US production to avoid higher sulfur residual sold today into the marine bunker fuel market, Valero chief operating officer Lane Riggs said at the Bank of America refining conference in New York.

Marpol treaty signatories representing more than 96pc of global shipping have agreed through the International Maritime Organization (IMO) to reduce sulfur emissions beginning 1 January 2020 to 0.5pc sulfur fuel, down from today's 3.5pc. The change, known as IMO 2020, slashes demand for higher-sulfur, less-processed distillates sold today into the marine fuel fleet.

US refiners expect the rules to boost distillate demand beginning in the second half of this year and create competing sour feedstocks to supply cokers and other complex equipment.

The rule will also create competition for vacuum gas oil and other, lighter and sweeter crude residuals as blendstocks for marine fuel, Riggs said. Availability of such blends would vary widely by region. But the earliest days of compliance will mean relying on more consistent and readily available light sulfur diesel production, Riggs said.

"To meet this, it is going to take incremental crude runs around the world," Riggs said. "The distillate crack is going to drive the European refiners to run more, and they are going to try and do it in the most economic way, which means they have to run lighter, sweeter crude."

Valero has imported US Gulf coast light, sweet crude to its 210,000 b/d refinery in Pembroke, Wales, for three years. The refiner still produces a 1pc fuel oil that would not comply with next year's shipping standards. Diluting that production would ultimately be less economic than shifting the crude slate to reduce it, Riggs said.

Higher volumes of naphtha, a gasoline blendstock, in US shale production will compete in price against the higher sulfur resid of the medium sour crudes that produce distillate today, he said.

"You are probably going to drive up the value of light sweet in the effort to meet demand for this distillate crack," Riggs said.