A recent conference heard about the future availability of distillate fuels from Ned Leary, Risk Marketing - Regional Team Leader, Shell International Trading and Shipping. Right now it is calm sailing, but the shipping industry is heading into a storm, he suggested, adding that nobody really knows how to meet the extra demand from shipping for distillate fuels as global and ECA deadlines became reality. He pointed out that demand growth for gasoil and diesel will be far more than for other fuels as it is directly driven by global GDP growth - every 1% GDP growth requires another 400,000 bbls/day of oil - mostly distillates, because they fuel economic activity.
He emphasised that it is a 'very big deal' shifting residual fuel oil (RFO) from max 3.5% to max 0.5% sulphur. The choice is either to 'destroy' the RFO into distillates or to desulphurise it.
He pointed to an increasing gap between incremental gasoil availability and incremental gasoil demand - despite the refiners already being incentivised to produce as much distillate fuel as possible, and already running behind forecast demand even without the incremental demand from shipping for cleaner fuels.
However all may not be quite as clear-cut and as stormy as presented. The suggestion that scrubbers may be the only way to fill this gap appeared to ignore two facts, namely:
1. the current low activity of the refining industry due to recession;
2. shipping represents less than 10% of future distillates demand, and, despite refiners needing five to seven years' lead time to adjust refining patterns, it is unlikely in practice that refiners will be unable to supply the fuels required 'to fuel economic activity'.
The refineries will simply have to become more efficient in order to compete for the 90% of the market, i.e. the land industry, which demands only very low sulphur products.
Source: INTERTANKO