compliance with imo regulations - new strategies for refiners in … · 2017. 6. 28. ·...

Baker & O’Brien, Inc. All rights reserved.

14th Annual Bunker and Residual Fuel Conference

Compliance with IMO Regulations - New Strategies for Refiners in the U.S.

and Internationally

Aaron Imrie

June 20, 2017 Houston, Texas

2

Legal Notice

Baker & O’Brien, Inc., (Baker & O’Brien) prepared this report for the S&P Global Platts 14th Annual Bunker & Residual Fuel Conference. The opinions and findings in this report are based upon Baker & O’Brien’s experience, expertise, skill, research, analysis, and related work to date. This report relies upon public and proprietary data available to Baker & O’Brien at the time this report was prepared. All forecasts and projections contained in this presentation represent Baker & O’Brien’s best judgment, utilizing its skill, and expertise. However, such forecasts and projections are inherently uncertain due to the potential impact of factors or future events that are unforeseeable at this time or beyond Baker & O’Brien’s control. Baker & O’Brien prepared this report for the sole benefit of this S&P Global Platts 14th Annual Bunker & Residual Fuel Conference. Any reproduction, distribution, or disclosure of this information is strictly prohibited without Baker & O’Brien’s prior written authorization. Baker & O’Brien expressly disclaims all liability for the use, disclosure, reproduction, or distribution of this information by or to any third party.

3

• IMO Regulation and Compliance Options

• Strategies for Refiners Heading Toward 2020 and the 0.5% Sulfur Cap

• Comparative Advantage of Refiners in the U.S. Versus Other Regions

• Summary

Agenda

4

• IMO 2020 SOx regulation for bunker fuel offers competing compliance options.

• Demand side responses:

– Emissions abatement, i.e., exhaust gas scrubbers

– Reduce demand (slower steaming, etc.)

– Waivers (Non compliance!)

• Supply side responses:

– Increase MGO, MDO, ECA fuel type volumes

– Manufacture LSFO (0.5 wt.% max. sulfur fuel oil)

– LNG and other low sulfur fuel alternatives

Compliance Options IMO Regulation and Compliance Options

5

• Which compliance option will dominate over the long run?

• What might a refiner be thinking now? Perhaps:

Questions Abound… IMO Regulation and Compliance Options

6

• Which compliance option will dominate over the long run?

• What might a refiner be thinking now? Perhaps:

“This isn’t our first low sulfur rodeo, and it probably won’t be the last. But, this one doesn’t look

like the others.”

• Let’s look at this visually for more insight on that perspective.

Questions Abound… IMO Regulation and Compliance Options

7

Complex Market Dynamics

Gasoline (ultra low sulfur)

Jet/Kerosene

Diesel (ultra low sulfur)

High Sulfur Fuel Oil

Crude Refining

Natural Gas Steam

Methane Reforming

H2

SUPPLY SIDE

Sulfur

H2

IMO Regulation and Compliance Options

Sulfur has been removed on the supply side in diesel and gasoline markets.

8



Jet/Kerosene



Crude Refining

Marine Use

Natural Gas Steam

Methane Reforming

H2

HIGH SOx

?

SUPPLY SIDE DEMAND SIDE

Sulfur

Scrubbers

Low SOx

H2


IMO 2020 compliance allows an option for sulfur to be removed on the demand side.

9



Jet/Kerosene



Low Sulfur Fuel Oil

Crude Refining

Marine Use

Natural Gas Steam

Methane Reforming

H2

HIGH SOx

?


Sulfur

Scrubbers

Low SOx

?

H2


IMO 2020 compliance allows an option for sulfur to be removed on the supply side as well.

10



Jet/Kerosene



Low Sulfur Fuel Oil

?

Crude Refining

Marine Use

Natural Gas

Liquefaction

LNG

Steam Methane

Reforming

H2

HIGH SOx

?


Sulfur

Scrubbers

Low SOx

CAPEX, OPEX, Infrastructure Considerations

?

H2


Natural gas competes in multiple ways as a solution.

11



Jet/Kerosene



Low Sulfur Fuel Oil

?

Crude Refining

Marine Use

Natural Gas

Liquefaction

LNG

Steam Methane

Reforming

H2

Inland Power/Heat

Scrubbers

HIGH SOx

?


Sulfur

Scrubbers

Low SOx

~

CAPEX, OPEX, Infrastructure Considerations

?

Coal, others…

Substitution?

~

Substitution?

H2


12

• How will your industry adjust?

• For Refiners:

– If bunker fuel oil is NOT currently part of a your product slate, will LSFO (0.5% S) prices and demand be attractive enough to adjust the slate?

– If HSFO is currently part of the product slate, how low will HSFO prices go?

Questions to Consider Depending on Perspective

Strategies for Refiners Heading Toward 2020 and the 0.5% Sulfur Cap

13

Any Indication From the Financial Markets?

$(18.00)

$(16.00)

$(14.00)

$(12.00)

$(10.00)

$(8.00)

$(6.00)

$(4.00)

$(2.00)

$-

$/B

3.5% Fuel Oil Barges FOB Rotterdam Crack Spread Futures

∆=~$6/B (increasing discount)

Source: CME Group (Platts) “3.5% Fuel Oil Barges FOB Rdam (Platts) Crack Spread Futures Quotes Globex” http://www.cmegroup.com/trading/energy/#refinedProducts

January 2020


http://www.cmegroup.com/trading/energy/#refinedProductshttp://www.cmegroup.com/trading/energy/#refinedProducts

14

• CAPEX related (proactive)

– Increase resid upgrading capacity (Cokers, Hydrocrackers)

– Increase distillate hydrodesulfurization capacity

– Increase sour gas treatment and sulfur recovery capacity

– Various combinations and/or newer technologies…

– What about the future of jet fuel (last sulfur “sink”)?

• OPEX related (reactive)

– Crude diet adjustments

– Adjust refinery flow rates (shift heavy, low-sulfur barrels)

– Increase (any) available unit capacity utilization

Types of Strategies Strategies for Refiners Heading Toward 2020 and the 0.5% Sulfur Cap

15

Basic FCC Cracking Refinery – Simplified Model

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer

Gas Plant -Treating Sulfur Recovery

Reforming Alkylation & Isomerization

Naphtha Hydrotreating

1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry

Source: PRISMTM Assay Viewer

650°F+


16

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Brent37.5 API0.40 % S F

uel

Oil S

ulf

ur

(wt.

%)

Yie

ld (

vo

l. %

)

Fuel Oil Yield and Quality

VR MCB LCO FO Sulfur (RHS→)

Basic FCC Cracking Refinery – Simplified Model BASE CASE - BRENT CRUDE

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry


650°F+

0.00

0.50

1.00

1.50

2.00

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Brent37.5 API0.40 % S

Die

se

l S

ulf

ur

(wt.

%)

BE

FO

RE

HD

T

Yie

ld (

vo

l. %

)

Middle Distillates Yield and Quality

Diesel/AGO Jet/Kero Diesel Sulfur (RHS→)


17

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Bonny Light35.1 API0.15 % S


Arab Light32.5 API1.93 % S F

ue

l O

il S

ulf

ur

(wt.

%)

Yie

ld (

vo

l. %

)


VR MCB LCO FO Sulfur (RHS→)

Basic FCC Cracking Refinery – Simplified Model COMPARE CRUDES

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry


650°F+

0.00

0.50

1.00

1.50

2.00

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Bonny Light35.1 API0.15 % S


Arab Light32.5 API1.93 % S

Die

sel

Su

lfu

r (w

t. %

) B

EF

OR

E H

DT

Yie

ld (

vo

l. %

)

Middle Distillates Yield and Quality

Diesel/AGO Jet/Kero Diesel Sulfur (RHS→)


18

Basic FCC Cracking Refinery – Simplified Model CRUDE DIET CHANGE

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry


650°F+

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

BL : Brent50 : 50

Fu

el

Oil S

ulf

ur

(wt.

%)

Yie

ld (

vo

l. %

)


VR MCB LCO LVGO FO Sulfur (RHS→)


19

Basic FCC Cracking Refinery – Simplified Model CRUDE DIET CHANGE II

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry


650°F+

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

BL : Brent50 : 50

BL : Brent75 : 25

Fu

el

Oil S

ulf

ur

(wt.

%)

Yie

ld (

vo

l. %

)




20

Basic FCC Cracking Refinery – Simplified Model CRUDE DIET CHANGE WITH VGO DOWNGRADE

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

FCC

LVGO

Light Ends Naphtha

Vacuum Resid

1

1

450°F

650°F

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

LCO

MCB/Slurry


650°F+

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

BL : Brent50 : 50

BL : Brent75 : 25

BL : Brent75 : 25

FCC BYPASS

Fu

el

Oil S

ulf

ur

(wt.

%)

Yie

ld (

vo

l. %

)



LVGO (0.3%) S


21

Comparative Advantage of Refiners in the U.S. Versus Other Regions

Source: EIA

22

• Highly complex refinery configurations.

• Under utilization might allow some flexibility in adjusting yield slate; some “room to fill”.

• Relatively lower energy costs supported by inexpensive, abundant natural gas.

• Access to competitively priced “over-the-fence” hydrogen.

• Relatively minimal (forced) exposure to HSFO markets.

Advantage Boost for U.S. Refiners? Comparative Advantage of Refiners in the U.S. Versus Other Regions

23

• U.S. natural gas forecast for 2017 is 73.3 Bcf/d.

• 2018 is forecast at 3.3 Bcf/d (+4.5%) above 2017.

• Henry Hub price expected to remain low.

Inexpensive and Abundant Natural Gas

0

1

2

3

4

5

6

7

8

9

Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018

Henry Hub natural gas price dollars per million Btu

Historical spot price

STEO forecast price

NYMEX futures price

95% NYMEX futures upper confidence interval

95% NYMEX futures lower confidence interval

Source: EIA (Short-Term Energy Outlook, June 2017); EIA (Today In Energy) “United States Remains the World’s Top Producer of Petroleum and Natural Gas Hydrocarbons”, June 7, 2017


24

• Multiple hydrogen pipeline networks available; e.g.,

• Gulf Coast Connection Project (2012)

– Houston to New Orleans

– 600 miles of bidirectional pipeline

– 22 hydrogen plants

– Over 1 Billion Scf/D of hydrogen capacity

Access to “On-Demand” Hydrogen

Source: http://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdf


http://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdfhttp://www.airproducts.com/microsite/h2-pipeline/pdf/air-products-US-gulf-coast-hydrogen-network-dataSheet.pdf

25

US Refining Yield Trends: Less Heavy, More Light Oil Products

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

0.0

5.0

10.0

15.0

20.0

25.0

PADD 11993

PADD 12016

PADD 31993

PADD 32016

PADD 51993

PADD 52016

Dis

till

ate

+ G

aso

lin

e Y

ield

s

Bo

tto

m-o

f-th

e-B

arr

el Y

ield

s

Yields (Volume % of Crude Oil)

Asphalt

Coke

Resid Fuel Oil

Distillate + Gasoline (RHS→)

0.74 %

Sulfur 1.42 %

Sulfur

1.43 %

Sulfur

Source: PRISMTM, EIA

2016 Average Resid Fuel Oil wt.% Sulfur


26

Underutilized Resid Upgrading Capacity

Crude

Sulfur

Fuel Gas

LPG

Gasoline

Jet/Kero

Diesel/AGO

Atm

osp

heri

c T

ow

er

H2

HDT

H2S

H2

H2S

LVGO

Light Ends Naphtha

Vac Resid

1

450°F

650°F

1050°F+

Vacu

um

To

wer




1

HVGO

1050°F+

1050°F

950°F

Source: EIA

H2S

H2

HCU

FCC

Coker

1

Coker and Hydrocrackers have (some) “room to fill”?

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015 2016

Uti

liza

tio

n R

ate

(%

)

Hydrocracking Utilization Rates

PADD 1 PADD 3 PADD 5

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015 2016

Uti

liza

tio

n R

ate

(%

)

Coking Utilization Rates



27

-

500,000

1,000,000

1,500,000

2,000,000


B/D

Hydrocracking Capacity (2016)

Used Available

• PADD 3 offers most availability.

• Total 2016 U.S. coastal PADD available upgrading capacity was approximately 850,000 B/D (high end estimate).

Available Upgrading Capacity

-

500,000

1,000,000

1,500,000

2,000,000


B/D

Coking Capacity (2016)

Used Available


Source: EIA

28

It Matters What You “Fill It” With

Source: AFPM Paper AM-15-75 “Heavy Oil Import for Delayed Coking Feed” (Table 2 – Delayed Coker Yields for Different Feed Blends) Sloley et. al., March 22-24, 2015. Reproduced with authorization from CH2M HILL.

0%

20%

40%

60%

80%

100%

ATB VTB VTB + FCC Slurry75 : 25

VTB + Visbreaker Pitch85 : 15

SDA Pitch(65% Yield)

SDA Pitch(35% Yield)

Weig

ht

% o

f C

oker

Feed

Delayed Coker Yields for Different Feed Blends

Coke Gas Oils Naphthas Light Ends


29

• Lots of uncertainty! Which creates:

– Barriers to investment.

– Stand-offs between shippers & refiners.

• Reducing fuel oil sulfur can be challenging and options limited without making investments.

• U.S. refiners are generally poised to take advantage.

– Low energy costs (abundant, low-cost natural gas).

– Access to hydrogen.

– Asset underutilization?

• Although there are reports of significant under-utilization of upgrading assets, it is not enough to “solve the global problem”.

Summary

30

Baker & O’Brien – Independent Energy Consultants

www.bakerobrien.com

Dallas

12001 N. Central Expressway Suite 1200

Dallas, TX 75243 Phone: 1-214-368-7626

Fax: 1-214-368-0190

Houston

1333 West Loop South Suite 1350

Houston, TX 77027 Phone: 1-832-358-1453

Fax: 1-832-358-1498

London

146 Fleet Street Suite 2

London EC4A 2BU Phone: 44-20-7373-0925

compliance with imo regulations - new strategies for refiners in … · 2017. 6. 28. ·...

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