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European refineries should reap benefits from new sulfur limit: conference

Cannes — European refiners should reap the benefits from the International Maritime Organization's stricter low sulfur bunker fuel regulations in 2020, with the expected switch of the shipping industry to marine gasoil likely to push refining margins up, according to delegates at the World Refining Association conference in Cannes Thursday.

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"Some good profit can be made," said Giacomo Boati, IHS Markit's Director for midstream and downstream, adding that "we have a positive forecast" for the end of 2019 and beginning of 2020 when the IMO regulation is expected to push margins up for European refiners.

These benefits should help refiners meet the challenges of the future, delegates said.

The IMO will impose a global 0.5% cap on marine fuel sulfur emissions from 2020, from the current 3.5% limit.

"Some good profit can be made," said Giacomo Boati, IHS Markit's Director for midstream and downstream, adding that "we have a positive forecast" for the end of 2019 and beginning of 2020 when the IMO regulation is expected to push margins up for European refiners.

IHS Markit expects that a switch to more scrubbers in the future, combined with some non-compliance would provide homes for some of the high sulfur fuel oil that is currently used as bunker fuel, though around 200,000 b/d of residue will need to be placed in the power sector as "there are still countries that use it to burn and produce electricity."

European refiners are also looking at power generation as a home for high sulfur fuel oil, delegates at the conference said. With no certainty about the future share of scrubbers, "you have to be flexible," according to Galp Energia's refining technical development manager Goncalo Caeiro, who said refiners should be prepared to produce the new low sulfur fuel but also fuel oil if it is needed.

In the first few months after the IMO rule comes into place "you can get big shifts," said Richard de Caux, head of refining analysis at BP.

Further into the future, IHS Markit sees challenges for European refineries as demand peaks around 2023, "primarily driven by a decline in diesel consumption," while global demand continues to grow and along with it new more competitive refineries come on stream in the Middle East and Asia. In addition, the shift to shared cars, as well as the electrification of cars and trucks, will pose challenges.

Hence Boati's advice to the European refining sector was to "make more money" during the transition to low sulfur bunker fuel "to reposition in the long term."

PETROCHEMICAL INTEGRATION

Further integration with the petrochemical industry is seen as another way to go forward.

"On the petrochemical industry we have an extremely positive outlook," said Boati.

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With growing petrochemical demand, delegates highlighted the importance of maximizing the synergy between refinery and petrochemical operations. Total reiterated that merging its refinery and petrochemical activities in 2012 had been "very successful."

According to Brian Glover, Vice President and General Manager of Honeywell UOP's Process Technology and Equipment business, some refineries were increasing "the severity of operations" of FCC units in order to produce more propylene.

"We will start to see more diversification, new technologies that allow broader petrochemical operations in refineries," such as producing mixed xylenes and benzene from aromatics units, said Glover. "If refiners are looking to reduce the gasoline volume, the first thing is to pull those aromatics out," Glover said, adding that "these are some small steps refiners can take to become more petrochemically integrated."

Another new trend that is emerging is that refineries start to produce renewable fuel inside the refineries, said Glover. Instead of closing the refinery and converting it into a biodiesel facility, biofuel production "becomes complimentary" to the existing refinery and "creates great opportunities."

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

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