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IMO2020 Market Issues Tokyo
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Stephen Jones Washington DC
12 February 2019 Riga
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Copyright © 2019 Argus Media group. All rights reserved.
Today’s marine fuel market
Copyright © 2019 Argus Media group. All rights reserved.
IMO 2020 MARPOL VI limits bunker sulphur to 0.5 wt%
Limited options include:
• Burn 0.5 % sulfur fuel,
residual fuel or MGO
• Install exhaust scrubbers
• Burn LNG
• Waivers or non-compliance
Impact on refining and shipping will be significant
Copyright © 2019 Argus Media group. All rights reserved.MARPOL applies to small volume, but has big impacts
§ Without wide IEA estimates that up to
adoption of ship- 1.2 mn bpd of low
based solutions by sulfur distillates and
January 2020, 0.9 mn bpd of VLSFO
will be pulled into the
significant volume of bunker market in 2020
high sulfur resid will
be displaced from
bunkers.
§ High sulfur resid will
have to find other
dispositions or be
converted to low
sulfur fuel.
§ Low sulfur distillate
demand will rise
significantly.
Copyright © 2019 Argus Media group. All rights reserved.IMO 2020 will disrupt typical trade (price) of HSFO
HSFO bunker fuel to be switched in 2020
But this leaves over 140mn t which needs to be switched
out….
We estimate about 30mn t
of HSFO will remain in the
bunker pool through A further 25mn t will remain
scrubbing through non compliance
MN T
A new 0.5pc fuel blend will
make up the remainder
Initially we think MGO will
be the preferred fuel
2020 HSFO New Scrubbing Non-compliance To MGO To 0.5pc FO
Copyright © 2019 Argus Media group. All rights reserved.The bunker marker faces a multi-fuel future
100%
80%
MGO
60%
0.5% FO
40%
20% 3.5% FO
0%
2017 2020 2023 2026 2029
Copyright © 2019 Argus Media group. All rights reserved.MARPOL will impact feedstock and product economics
LPG
Naphtha
Naphtha
Reformer Aromatics
Hydrotreater
Crude Unit Gasoline
Alkylation
Blending/treating
Gasoline
Jet/Kero
Distillate
Hydrotreater Diesel/Gasoil
Feed
Olefins
Pre-
FCC
Vacuum Unit treat
Bunker Blend
Hydrocracker
HSFO
Coker Coke
Copyright © 2019 Argus Media group. All rights reserved.0.5pc FO price must offset FCC revenue loss
FCC cracking refinery (Urals)
• FCC cracking refineries should +/- 2020 Prices Yield*Price
achieve at least the same margin Propane -4.3%
Butane
whether the FCC is at higher or lower Naphtha
-1.3%
-1.4%
rates to make LS VGO available. Gasoline -14.4%
Jet Kerosene 0.3%
Gas Oil -2.6%
• The 0.5pc FO will need to price at a ULSFO 180cst 25.6%
significant premium to HSFO in order HSFO 380cst -6.7%
to ensure this happens. Total $0.00/bl
$/bl Northwest Europe fuel oil vs Urals
• This will free up sufficient capacity to
produce 0.5pc sulfur fuel oil. 0
-20
• There will be a corresponding
reduction in naphtha, gasoline and -40
gasoil production.
2000
2003
2006
2009
2012
2015
2018
2021
2024
2027
2030
2033
2036
2039
2042
2045
Fuel oil 3.5% NWE fob Fuel oil 0.5% 180cst NWE fob
Copyright © 2018 Argus Media group. All rights reserved.Low S versus high S product differentials will widen
USGC ULSD - 3% HSFO Differential Sample results
(fob, through January, 2018) from Argus
model runs. (Two
$80 $/bbl high probability
$70 scenarios.)
$60
$50
$40
$30
$20
$10
$-
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 Jan-23
Copyright © 2019 Argus Media group. All rights reserved.Forward market already reflects steepening spreads
Fo r wa rd C ra c ks ( 1 1 Fe b 2 0 1 9 ) Light/Heavy (ULSD vs HSFO Forward Curves)
35 45
30 40
25 35
20 30
15
USD/BBL
USD/BBL
25
10
20
5
0 15
-5 10
-10 5
-15 0
Feb-19
Feb-20
Feb-21
Jun-19
Jun-20
Jun-21
Dec-19
Dec-20
Dec-21
Oct-19
Oct-20
Oct-21
Apr-19
Apr-20
Apr-21
Aug-19
Aug-20
Aug-21
Au 1 9
Au 2 0
Au 2 1
Ap 9
Ap 0
Ap 1
De 9
De 0
De 1
Fe 9
Fe 0
21
Ju 9
Ju 0
Ju 1
Oc 9
Oc 0
Oc 1
t-1
t-2
t-2
1
2
r-1
r-2
r-2
1
2
2
1
2
2
c-
c-
c-
g-
g-
g-
n-
n-
n-
b-
b-
b-
Fe
HSFO USGC crack ULSD crack
Copyright © 2019 Argus Media group. All rights reserved.Likely MARPOL effects
Light-Heavy Crude Price Differential
[Brent/North Sea Dated versus Maya (USGC). Yearly avg. prices. ]
Sample results
$16 from Argus
$/bbl model runs. (Two
$14 high probability
scenarios.)
$12
$10
$8 ?
$6
$4
$2
$0
Copyright © 2019 Argus Media group. All rights reserved.MARPOL could drive wide cracks but they appear
tempered when shown as light products vs. LLS
$/bl
USGC vs LLS 40
Gasoline 87 conv USGC 20
waterborne fob lowest RVP
0
Diesel ULSD 62 fob USGC
waterborne -20
-40
Fuel oil No 6 3% USGC fob
monthly avg -60
Fuel oil 0.5% -80
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
Copyright © 2019 Argus Media group. All rights reserved.MARPOL driven crack spreads show strong values
for light products vs. light sour Mars crude oil
$/bl
USGC vs Mars 40
Gasoline 87 conv USGC waterborne 20
fob lowest RVP
0
Diesel ULSD 62 fob USGC
waterborne -20
Fuel oil No 6 3% USGC fob monthly -40
avg
-60
Fuel oil 0.5%
-80
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
Copyright © 2019 Argus Media group. All rights reserved.Crude oil spreads follow light/heavy product
spreads – a pronounced but temporary IMO effect
Crude differentials vs North Sea Dated
20
2018 $/bl
0
-20
-40
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
Bonny Light Arab Light Dubai month
Mars Month Maya USGC
Copyright © 2019 Argus Media group. All rights reserved.Stephen Jones Senior Vice President Oil Products Argus Media Inc. Stephen.Jones@argusmedia.com Houston www.argusmedia.com http://blog.argusmedia.com Stay Connected @ArgusMedia Argus-media +Argusmediaplus argusmediavideo Copyright notice Copyright © 2018 Argus Media group. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, the ARGUS logo, Argus publication titles, and Argus index names are trademarks of Argus Media Limited. For additional information, including details of our other trademarks, visit argusmedia.com/trademarks.
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