BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
COOKIE NOTICE

Register with us today

and in less than 60 seconds continue your access to: Latest news headlines Analytical topics and features Commodities videos, podcast & blogs Sample market prices & data Special reports Subscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

Please Note: Platts Market Center subscribers can only reset passwords via the Platts Market Center

Enter your Email ID below and we will send you an email with your password.


  • Email Address* Please enter email address.

If you are a premium subscriber, we are unable to send you your password for security reasons. Please contact the Client Services team.

IF you are a Platts Market Center subscriber, to reset your password go to the�Platts Market Center to reset your password.

In this list
Oil

Analysis: Saudi Arabia could be vital to fuel oil's hazy future

Energy | Metals | Petrochemicals | Shipping

Market Movers Europe, Oct 15-19: Questions over oil price direction

Oil

Platts Rigs and Drilling Analytical Report (RADAR)

Natural Gas | LNG | Oil | Crude Oil | Refined Products | Petrochemicals

Platts Workshop at the S&P Global Platts Energy

Natural Gas | Oil

Shell agrees to sale of Danish oil, gas assets to Noreco for $1.9 billion

Analysis: Saudi Arabia could be vital to fuel oil's hazy future

Highlights

Saudi could replace crude with fuel oil for power generation

Demand to rise as desalination capacity grows

Could help clear excess fuel oil post 2020

London — The world's largest crude oil exporter could be the answer to the quandary that awaits the high sulfur fuel oil market once interest for this product wanes due to implementation of a global marine sulfur cap.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

As demand shifts away from 3.5% HSFO in the bunker market to cleaner marine fuels due to the International Maritime Organization's global 0.5% marine sulfur cap from 2020, Saudi Arabia could emerge as one of the main outlets for this product.

Related podcast: Saudi fuel oil demand could support European exports year-round

Resurgent Saudi Arabian demand has been the driving force behind the strength of the European fuel oil complex this summer, with demand centred on power generation for desalination and to meet increased air-conditioning requirements in the summer months.

Traditionally, the fuel oil arbitrage from Europe into the Red Sea is a seasonal summer trend from April to October when Saudi Arabia and other Middle Eastern nations buy fuel oil to power air-conditioning. But with Saudi significantly increasing its desalination capacity, buying interest is expected to emerge even in the winter months.

From 2020 onwards, excess HSFO will need to find a home, with S&P Global Platts Analytics expecting an initial displacement of about 3 million b/d of the product.

Analysts believe the power sector could end up playing a pivotal role in propping up the fuel oil market even though environmental policies in some countries might prevent this from becoming a major trend.

Goldman Sachs in its recent report 'IMO 2020 -- Challenging but Solvable,' said Saudi demand could help substitute fuel oil for crude in power generation.

"Saudi Arabia -- who stands to lose from the IMO regulation given the elevated sulfur content of its crude -- offers the largest potential source of such fuel oil absorption in our view," the Goldman Sachs report said.

Countries like Pakistan, Bangladesh, Iraq and Iran could also be potential candidates for such substitution as supply outweighs demand.

"I think cost is the main driver for energy options. In the absence of stringent environmental regulations, cheap and polluting fuels will certainly find a market regardless of their environmental impact," said Yousef Alshammari, CEO of UCERGY Analysts.

Saudi Arabian fuel oil consumption has been growing over the last three years and liquid fuels continue to account for half of the kingdom's energy mix, despite a commitment to raising gas production.

DESALINATION DRIVE

Saudi uses domestically produced crude for power generation and at its desalination plants, although cheap fuel oil is an attractive alternative feedstock when the kingdom is looking to sell crude at a premium.

Earlier this year, the kingdom announced plans to build nine desalination plants in the Red Sea area, with some of these units already online, according to market sources.

A source close to the energy ministry told S&P Global Platts that there are a total of 31 desalination plant projects in the country. "Four are under study, two are under construction, and five are private. The rest are all operational," the source said.

Saudi Arabia has the world's largest desalination capacity, accounting for around a fifth of global capacity, the International Water Summit said in a recent report titled 2018 Energy Efficient Desalination report.

With fuel oil prices expected to decline sharply post 2020 as demand slides for HSFO, the market is banking on the Middle East to take advantage of cheap fuel oil cargoes for power generation.

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

--Eklavya Gupte, eklavya.gupte@spglobal.com

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com