Refiners moving maintenance to Q2 in preparation for IMO 2020: Wood Mackenzie
Refiners globally are bringing more plant maintenance forward to the second quarter from later in the year so they can be ready for increased demand resulting from new cleaner-fuel shipping rules, according to Wood Mackenzie.
The International Maritime Organization is imposing new regulations from January 2020 requiring ships to use fuel with no more than 0.5% sulfur in international waters, compared with the 3.5% limit currently. Diesel, low sulfur fuel oil and LNG will gain market share in bunker fuels through 2025 as a result of the changes, Wood Mackenzie forecasts.
Gross refinery margins are expected to strengthen later in the year as demand for compliant fuels increases in anticipation of IMO implementation, according to John Stewart, a principal analyst at Wood Mackenzie in Dubai. Crack spreads for compliant fuels should increase in the second half of the year, he said.
“You are getting a lot of maintenance built in to try and capture any changes that the IMO legislation brings to crack spreads later in the year,” Stewart said. “So rather than undertake maintenance in the third quarter or fourth quarter when margins look to be quite good, refiners are bringing work forward to the start of the year.
“The recovery we see in the gasoline market in the middle of the year is partially seasonal, so demand increases, but partially also because maintenance in the market has come forward to the start of the year,” he said.
“Toward Q4, that’s when you start to see refiners reorient their system to make compliant fuels for the IMO legislative change,” Stewart said. “So as they shift yields toward distillate fractions, you will see less gasoline coming out of the system which actually supports the gasoline market.”
In northwest Europe, the gasoline crack will reach $10/b over Brent in the third quarter compared with about breakeven now, Wood Mackenzie estimates.