US Caribbean utilities positioned poorly for IMO 2020

US Caribbean territories Puerto Rico and the US Virgin Islands may see the cost of the residual fuel oil they use for power generation spike in 2020 because of the International Maritime Organization (IMO) marine fuel regulation. Puerto Rico Electric Power Authority (Prepa) and Virgin Islands Water and Power Authority (Wapa) burn 0.5pc maximum sulphur resid. The regulation will cap the sulphur content of residual fuel oil used for bunkering to 0.5pc from 3.5pc, raising demand and prices of 0.5pc sulphur fuel oil.

Puerto Rico imported 13,915 b/d of residual fuel oil last year, while the US Virgin Islands imported 13,652 b/d of resid, data from the US Energy Information Administration show. Of these quantities, 0.5pc sulphur maximum fuel oil accounted for the bulk of the resid imports: 11,408 b/d for Puerto Rico and 11,252 b/d for the US Virgin Islands. The remainder was 2.5-4.98pc sulphur residual fuel oil, which was sold for local marine fuel demand.

To avoid steep Jones Act oil tanker freight costs, the residual fuel oil imported into these US Caribbean territories is typically sourced from foreign countries. The bulk of the 0.5pc sulphur fuel oil originated from Argentina and Brazil. Puerto Rico imported 8,438 b/d and the US Virgin Islands imported 8,815 b/d combined from Argentina and Brazil in 2018.

Prepa and Wepa have a contract for the supply of the residual fuel oil with trading firm Freepoint Commodities, which imported all of the residual fuel oil to the US Virgin Islands and nearly all of the residual fuel oil to Puerto Rico. Freepoint is part-owner in Limetree Bay Ventures. Limetree secured financing in December 2018 to restart about 200,000 b/d of capacity at its mothballed 350,000 b/d St Croix refinery in the US Virgin Islands. As of December, the restart was planned for the end of 2019. The company envisages it starting up a crude unit, a delayed coker, hydrotreaters and a reformer. The refinery will produce, among other things, distillates suitable for the shipping sector. It is not yet clear if the refiner will be making 0.5pc sulphur residual fuel oil, which could soften the blow for Wapa from the expected residual fuel oil spike in 2020.