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Factbox: Refinery upgrades, works to ramp up ahead of 2020 IMO sulfur cap

London — As the International Maritime Organizations 2020 0.5% global marine sulfur cap edges closer, refinery upgrades are expected to pick-up through H2 2018 and early 2019 and the entire refined products market could see a tighter supply complex as refining capacity is taken offline.

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MORE MAINTENANCE AHEAD

"Planned refinery maintenance periods in the run-up to 2020 may take longer than usual as conversion units are added and/or as refiners skew product yields of existing capacity in favor of distillates," Harry Tchilinguirian, Global Head of Commodity Markets Strategy at BNP Paribas told S&P Global Platts.

This year, among others, ExxonMobil aims to complete construction of the new delayed coker at Antwerp while in Rotterdam Shell is to complete a solvent deasphalter at the Pernis refinery. Typically the launch of new units is accompanied by refinery works until they are connected with the rest of the refinery.

Refinery maintenance for H2, 2018 and 2019 is higher than previous years, JP Morgan Analysts said in their weekly report.

"We also expect maintenance to pick up either during this fall or spring next year in preparation for the IMO 2020 as refineries might want to carry out extensive maintenance well ahead of the change in specification as they might be incentivized to prices at elevated levels due to incremental demand for gasoil and higher margins on that back of that," the JP Morgan analysts said.

PRODUCTS BENEFIT

Product cracks have already surged this summer and are expected to hold some strength with maintenance on the horizon.

The fuel oil paper market paints a picture for a strong end of year as the 3.5% FOB Rotterdam barge intermonth spreads currently are priced in backwardation as refinery upgrade programs are expected to tighten the fuel oil complex.

Typically the fuel oil market declines at the end of the year and take on a contango structure from November through to February, as market players begin to destock for end of year accounting purposes and the market does not benefit from the additional power generation requirements from the Middle East seen during the summer months.

But the 3.5% FOB Rotterdam barge intermonth spreads are currently pricing in backwardation, as the fuel oil complex is expected to tighten as refinery upgrades come online and also with lower exports from Russia.

Further out, the distillate market will be getting increased support.

"Distillates will do very well after 2020. Not making fuel oil will be a huge margin boost, and distillates will strengthen on strong demand," Stephen George, chief economist at energy consulting group KBC, said.

The expected higher demand would also mean more imports.

"Currently Europe imports around 1 million b/d of diesel and in the short term imports of gasoil could increase because of the IMO 2020 changes," George added.

Rising demand for distillates will also provide an impetus for further upgrades.

"Additions to global conversion capacity continue well into 2022 and beyond. Eventually the industry will catch up with the incremental distillate demand generated by the IMO mandate," Tchilinguirian said.

UPGRADES GO AHEAD

Not all refiners will be in a position to meet the bunker requirements in 2020 as vast capital and time is required to install hydrocrackers to maximize diesel output and limit fuel oil output.

"In our latest medium-term forecast released in March, we do not expect that the refining industry can bring online the required capacity upgrades on time," the International Energy Agency said.

The spec change could create "unfavourable refinery margin dynamics for the less complex refineries, especially for those constrained in terms of desulphurisation capacity," the IEA added in its latest monthly report.

But upgraded refineries are on track to produce the lower sulfur fuel.

For instance Italian refiner Saras will start producing 500,000 mt of the new type of fuel annually and ramp output up to between 900,000 mt to 1 million mt, "once we gain confidence in the product and in the sales process as it is a new territory, both for us and for the market," CEO Dario Scaffardi said when presenting the H1 2018 company results.

He said he expected the 500,000 mt target to be reached in 2020, as production will initially be limited by the maintenance constraints of the year.

According to IMO data, presented at a conference last year, coking capacity is expected to grow by 35% and hydrocracking by 37% from the 2012 level, which should ensure sufficient quantities of compliant marine fuels.

Below is existing and planned coking capacity in Europe and FSU.

Refinery
Country
Coker
Status
Capacity
Burghausen Germany coker existing 27,470 b/d
Gelsenkirchen Germany coker existing 17,000 b/d
Miro Germany delayed coker existing 25,000 b/d
Lingen Germany coker existing 1.2 mil mt/yr
Rheinland Germany SDA in project NA
Schwedt Germany coker existing NA
Antwerp-Total Belgium SDA existing 2.7 mil mt/yr
Antwerp-ExxonMobil Belgium delayed coker pending NA
Pernis Netherlands SDA pending NA
coker existing 40,990 b/d
Rotterdam-Gunvor Netherlands NA NA NA
Porvoo Finland SDA existing NA
Fredericia Denmark coker existing NA
Slagen Norway coker existing NA
Mongstad Norway delayed coker existing 24,940 b/d
Cartagena Spain delayed coker existing 61,000 b/d
Castellon Spain coker existing 20,000 b/d
Puertollano Spain coker existing 24,000 b/d
Bilbao Spain coker existing 41,000 b/d
La Coruna Spain coker existing 1.08 mil mt/yr
Fos sur Mer France coker existing NA
Port Jerome France coker existing NA
Fawley UK coker existing NA
Humber UK coker existing 64,820 b/d
Elefsis Greece flexicoker existing 20,050 b/d
Rijeka Croatia delayed coker in project NA
Sisak Croatia coker existing 4,540 b/d
Duna Hungary delayed coker existing 24,700 b/d
Lotos Poland delayed coker pending NA
Taranto Italy residue conversion existing 22,000 b/d
Petrobrazi Romania coker existing 22,770 b/d
Petrotel Romania coker existing 10,500 b/d
Petromidia Romania delayed coker existing 31,540 b/d
Pancevo Serbia delayed coker 2019 2,000 mt/day
Izmit Turkey delayed coker existing 52,000 b/d
STAR Turkey delayed coker pending NA
Novokuybishev Russia delayed coker existing 25,300 b/d
Novoil Russia coker existing 24,000 b/d
Ufaneftekhim Russia

delayed coker

existing 1.6 mil mt/yr
Achinsk Russia

delayed coker

existing 11,130 b/d
Angarsk Russia

delayed coker

existing 11,220 b/d
Komsomolsk Russia

delayed coker

existing 1 mil mt/yr
Taneco Russia

delayed coker

existing 2 mil mt/yr
Perm Russia

delayed coker

existing 2.1 mil mt/yr
Volgograd Russia

delayed coker

existing 1 mil mt/yr
Antipinsky Russia

delayed coker

existing

1.54 mil mt/yr

Nizhnekamsk Russia residue processing test mode NA
Omsk Russia delayed coker 2020 2 mil mt/yr
Nizhny Novgorod Russia delayed coker 2021 2.1 mil mt/yr
Tuapse Russia flexicoker in project NA
Ufa Russia delayed coker 2020 2 mil mt/yr
Ilsky Russia delayed coker in project NA
Afipsky Russia delayed coker in project NA
Naftan Belarus delayed coker 2019 NA
Atyrau Kazakhstan delayed coker existing 600,000 mt/yr
Pavlodar Kazakhstan delayed coker existing 18,280 b/d
Heydar Aliev Azerbaijan delayed coker existing 38,000 b/d
Turkmenbashi Turkmenistan delayed coker in project NA

--Eleni Pittalis, eleni.pittalis@spglobal.com

--Elza Turner, elza.turner@spglobal.com

--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com