Marine fuel change complicates US refining M&A: PBF
Looming changes to global marine fuel quality will complicaterefinery mergers and acquisitions, PBF Energy chief executive Tom Nimbley said.
Refiners expect stricter sulfur limits on marine fuels imposed by the International Maritime Organization (IMO) beginning January 2020 to contribute to strong margins for complex coastal facilities able to produce low sulfur distillates.
The outlook inflated US refining prices, but could pressure less complex facilities into a sale, Nimbley said on a quarterly earnings call.
“The buyer has to look at, is IMO a three-year transitory thing, or do you think it is longer than that?” Nimbley said. “If it is the former, you are not going to elevate your price ridiculously to get it.”
Marine fuels beginning January 2020 must contain 0.5pc sulfur, down from 3.5pc sulfur. The shift removes a market for higher sulfur production from less complex refineries that lack costly equipment to produce lower sulfur distillates.
Refiners expect the change to pressure sour crudes and boost diesel prices, at least as the market adjusts to the changes.But the risk that those margins will not last long has kept US refiners from making more significant investments based on the rule.
PBF Energy could make smaller adjustments to take advantage of the change. The company considered restarting a 12,000 b/d coker at its 190,000 b/d refinery in Chalmette, Louisiana, shut by previous owners ExxonMobil and Venezuelan state-owned oil firm PdV.
The refiner could also support a third-party hydrogen plant at its 190,000 b/d Delaware City, Delaware, refinery, to support sulfur reduction.
But no US refiner has proposed bigger, expensive units used to upgrade heavy or high sulfur material, such as the cokers or hydrocrackers PBF already operates, were off the table. That could pressure refiners that lack them to make commercial arrangements or sell, Nimbley said.
“We could build a hydrocracker for $1bn, or we could buy two refineries for $1bn,” Nimbley said.
Marathon Petroleum’s proposed acquisition of Andeavor, which if approved would create the largest US independent refiner, would be tough to match. It would be much more difficult to acquire more complex refineries without a better idea of how long the higher-price environment would last, he said.
“We bought five refineries, and it is not clear to me that there are five more refineries, or even three refineries, out there that you can get under that same model right now,” Nimbley said. “The bid-ask has widened out quite a bit.”