The implementation of tighter sulfur specifications for global bunker fuel in 2020 remains a major source of uncertainty for markets and refiners. Most of the industry still seems to be taking a ‘wait and see’ attitude, but there does appear to be some tentative movement in the industry to find ways to invest around the potential opportunity that this could create.
Some refiners are investing in conversion capacity that should benefit from the wider light-heavy and sulfur differentials that many expect to come with the proposed new MARPOL rules. Between 2017 and 2023, approximately 3 million barrels/day of new resid processing capacity is expected to come on line and benefit from MARPOL market impacts.
Refiners investing to take advantage of MARPOL
Resid hydrotreating accounts for almost half of this capacity. Hydrotreating does not eliminate the resid but does reduce its sulfur content.
Most of the true resid conversion capacity is coking, which requires accompanying hydrocracking to maximize conversion to diesel. Direct resid hydrocracking accounts for only a little over 10% of the new capacity.
Most of these projects have already been under development for years, so it is likely that the MARPOL opportunity was not the only rationale for the project. Projects started now would at best be online one to two years after MARPOL implementation, running the risk of missing a most or all the opportunity.
Tim Fitzgibbon is a senior industry expert based in Houston.