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Asian refiners advance plans to produce IMO-compliant fuel despite hurdles

Leading Asian refiners have advanced plans to produce low-sulfur bunker fuels as the International Maritime Organization’s deadline draws near, but analysts say high costs pose the biggest challenge and therefore production needs to be incentivized for more refiners in the region to join the bandwagon.

State-run Indian Oil Corp., China’s Sinopec, Taiwan’s CPC and Japan’s Cosmo Oil are leading the push to produce IMO-compliant fuels as refiners in the region look for ways to quench the rising thirst for cleaner bunkering fuels.

“Overall, supplies of compliant bunker fuels need to incentivized. Prices will go up. So the shipping industry in Asia needs to adapt by installing scrubbers or use pricier IMO-compliant fuels, which is what they are doing,” said Kang Wu, head of analytics at S&P Global Platts.

“As such, shippers, refineries, traders and other players in Asia will all be affected,” he added.

The IMO will cap global sulfur content in marine fuels at 0.5% from January 1, 2020, down from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%.

“Asia is short on fuel oil — mainly HSFO at present — but the region is long on gasoil. This puts the region in an unique position to deal with IMO 2020 where, to some extent, surpluses of gasoil can well be used to complement the shortage of LSFO or IMO-compliant fuels, for bunker use,” Wu said. “That does not mean that at all the challenges of IMO 2020 will be totally gone for Asia,” he added.

“A lot of refineries in Asia are facing compatibility issues when it comes to production of 0.5% fuel. That is also a key challenge to overcome,” said Nevyn Nah, senior oil products analyst at Energy Aspects.

Compliance with the IMO 2020 rule is expected to be around 80%-90% in the initial months following 2020, with Asia playing an active role in achieving this compliance rate as refiners pave the way, sources said.

“Taking advantage of sweet crude supplies at home and the sophistication of many large refineries, and thus flexibilities in the refining system, China may be in a good position to make more LSFO available to markets in the country and outside,” Wu said.

Sinopec’s Shanghai Petrochemical in January became the first Chinese refinery to produce and supply low-sulfur bunker fuel oil to vessels plying international voyages. The 10,000 mt 0.5% sulfur 380 CST fuel oil was directly produced from its residual hydro-treater.

In March, another Sinopec refinery, Hainan Petrochemical, said it was aiming to produce up to 1 million mt/year of LSFO. The refinery loaded 2,200 mt of fuel oil with 0.5% sulfur content to depart to East China Ningbo.

Chimbusco also has plans to secure LSFO supplies from CNOOC’s Zhoushan Petrochemical plant in Zhoushan in Zhejiang province.

Still, most of China’s new refineries along the coast — Sinochem’s Quanzhou Petrochemical, CNOOC’s Huizhou Petrochemical and PetroChina’s Guangxi Petrochemical — have so far stayed away from making any firm commitment to produce 0.5% sulfur fuel.

Elsewhere in Asia, India’s IOC has already carried out detailed tests to advance the production of bunker fuels compliant with IMO’s 2020 rule and aims to start supplying cargoes commercially from September 2019.

“Like China, oil companies in India are targeting to provide IMO 2020 compliant fuels as well, as soon as later this year,” Wu said. “Japan, South Korea and Taiwan have long had experience using LSFO for various segments of the economy. To a certain degree, they are capable of adjusting their run rates or upgrading units to maximize gasoil and LSFO production to accommodate the requirement for lower sulfur fuels,” he added.

Japan’s Cosmo Oil plans to start supplying 0.5% sulfur bunker fuel from October with the expansion of the coker at its 100,000 b/d Sakai refinery in Osaka, company sources said recently.

In January, Taiwan’s CPC launched its daily posted price for low sulfur fuel oil with maximum 0.5% sulfur. CPC’s LSFO specification is a maximum of 0.5% sulfur by mass, maximum viscosity of 180 CST, flash point of 60 degrees, pour point of 30 degrees and density of 0.991 kg/l.

S&P Global Platts launched Marine Fuel 0.5% assessments for cargoes January 2 and will start bunker fuel 0.5% assessments at key ports globally from July 1.

Trade sources are also keeping an eye on how Singapore will gear up to meet the demand.

“Singapore, as the world’s largest bunkering market, is likely to see some challenges come 2020 as it has no refinery coking facilities, nor are any planned, and there is limited heavy oil desulfurization,” said Lim Jit Yang, director for Asia-Pacific oil market analysis at S&P Global Platts Analytics.
Source: Platts

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