VGO blend to meet new marine regs: Downstream Advisors

OREANDA-NEWS. October 27, 2016. Blending vacuum gasoil (VGO) with residual fuel oil could effectively meet the future global 0.5pc marine fuel sulphur requirement, Downstream Advisors President Steve Graybill told delegates at the Argus Fuel Oil & Feedstock conference in Miami.

The International Maritime Organization (IMO) will meet this week in London to decide on a date to implement the new sulphur regulations, which will reduce the marine fuel sulphur limit in international waters from 3.5pc to 0.5pc starting on either 1 January 2020 or on 1 January 2025.

The use of VGO, which typically commands lower prices than diesel, could bolster demand for VGO as a marine fuel blendstock. Diesel has also been touted as an alternative blending component to meet the new sulphur requirements.

While VGO is largely used as feedstock for fluid catalytic crackers (FCC) to make gasoline, VGO demand bunker blending purposes could rise after the new regulations take place. This in turn could leave less VGO available for FCC feedstock, possibly raising the price of gasoline.

Straight-run residual from low-sulphur crudes and hydrotreated VGO will play a significant role in meeting the 0.5pc sulphur marine fuel limit, said Graybill. The new bunker blend would be composed of 0.05pc sulphur VGO and 2pc sulphur residual fuel oil.

Downstream Advisors estimated global bunker demand will be around 290-320mn t in 2020, with potentially 130-150mn t of that quantity a residual fuel oil and VGO blend.

In addition, 30-50mn t of residual fuel oil will be scrubbed by marine exhaust scrubbers, 90-130mn t will be marine gasoil and marine diesel oil, and 20mn t will be LNG, gasoline and biofuels.

A number of alternative solutions have been proposed to meet the marine fuel regulations, besides installing cokers at existing refineries.

"In Africa you have a lot of low-sulphur crudes that [you can just put in a topping refinery]. Off of the bottoms, you can make 0.5pc sulphur resid," Graybill said.

Data from Downstream showed global refining residual conversion capacity was 10.3mn b/d out 15.5mn b/d of total refinery processing capacity in 2015. The company also expected residual conversion capacity to increase to 11.4mn b/d out of 16.9mn b/d of processing capacity in 2020.