Hydrocarbon Engineering: ESAI Energy’s recently released ‘Global Fuels 12-month Outlook’ highlights how Asia will bear the brunt of the demand shift caused by the International Maritime Organization’s (IMO) new sulfur cap for shipping fuels in 2020.
Over the next two years, crude and condensate production from the Bakken will reach record high levels despite a temporary lack of infrastructure to handle gas processing and NGL takeaway. Bakken production is forecast to average 1.4 million b/d this year, and 1.5 million b/d in 2020. Increased rig efficiency and enhanced completion methods are helping the economics outside the core.
Hellenic Shipping News: ESAI Energy’s recently released Global Fuels 12-month Outlook highlights how Asia will bear the brunt of the demand shift caused by the International Maritime Organization’s new sulfur cap for shipping fuels in 2020. Asia makes up 40 percent of global bunker demand, with Singapore, China, and Hong Kong accounting for most of that market. At the same time, the relative availability of MGO to LSFO in Asia means that MGO will be a more likely substitute in that market. In other regions, substantial shifts are taking place from HSFO to LSFO. A big shift in demand will move global markets.
Although heavy maintenance and outages in the third quarter of 2019 will temper UK production growth in the North Sea this year, new projects will help maintain total output of just over 1 million b/d for the next several years. Annual production growth from the UK North Sea will average close to 50,000 b/d in 2019 and 2020. Seven new projects are expected to ramp up through 2020, adding a total 245,000 b/d of new productive capacity. Areas west of the Shetland Islands are seeing the most activity.
ESAI Energy expects the region’s downtrend in operating capacity will turn a corner in 2019. Although maintenance and outages will continue to hinder operating capacity, the continued slow recovery in Mexico’s refineries and the restart of a U.S. Virgin Island refinery early in 2020 will contribute to the first rise in operable capacity and throughput in more than five years.
Though global in scope, the effect of the IMO sulfur cap on product fundamentals will be largest in Asia, where refiners and distributors will have to carry out a tremendous shift between bunker fuel oil and bunker gasoil in a short period beginning in the fourth quarter of this year. Trade flows will be rerouted as supply and demand balances suddenly change.
Europe and India’s gasoline deliveries to the Middle East are in the crosshairs as higher refinery output backs out imports. Since India’s refineries have a competitive advantage, especially when compared to Europe’s less sophisticated refineries, Europe’s 140,000 b/d will be more than halved by 2020.
Soaring output of ethylene and paraxylene in early 2019 has set China’s naphtha demand on a steep upward trajectory. Naphtha use, largely “hidden” within integrated refinery- petrochemical units, will grow by 250,000 b/d and 190,000 b/d in 2019 and 2020, respectively. Among other things, growing use of non-marketed naphtha provides context for Chinese oil demand amid declining transport fuel use.
Demand for middle distillates – diesel, jet, and kerosene – will grow by a cumulative 50,000 b/d in the next two years to reach 3.2 million b/d by 2020. Venezuela has been a drag on regional demand while Brazil and several other countries have contributed modestly to fragile growth. Overall, the region’s distillate demand will get a modest boost from bunker gasoil in 2020 due to the IMO sulfur rules.
As we expected, China’s crude imports came down to 9.5 million b/d in May. In the next few months, crude imports should stay below 10 million b/d given more refinery maintenance and already high inventory levels.
Gulf Times: A change in ship fuel that seemed like a sure profit churner for sophisticated refiners a year ago isn’t a clear winner now. When the International Maritime Organisation imposed clean-fuel rules for ships starting in 2020, the popular outlook was that thicker, dirtier crude would plummet in price, as it yields more of the high-sulphur fuel oil that can’t be burned unless ships have special equipment to scrub their emissions. Diesel prices would surge as vessel owners use it as a substitute.
Despite his tough talk, President Trump has typically leaned towards isolationism, making him less likely to pursue large scale military intervention. At the same time, the Iranian leadership will be very cautious about escalating conflict in the Gulf. So, the bar for significant conflict in the region is high. Even so, Iran may see domestic or regional political benefits from further small-scale attacks or disruptions. The implicit threat of escalation, therefore, is here to stay.
World Pipelines: As the OPEC+ meeting, now delayed until July 7, approaches, the question of inventory levels will gain considerable attention. As we have written before, we believe global (OECD and non-OECD) crude oil and product inventories are adequate, but not excessive. This month, however, we parse just the OECD stock picture, which will shape impressions of over or under supply before and during the OPEC+ meeting. Although we are not supporters of the five-year average measurement, that approach (when corrected for demand) shows crude inventories are in the middle of the historical range, and product stocks are actually at the low end of the range. We do not believe inventories will or should be justification for further production restraint. But, we are concerned about weak underlying demand growth as discussed in our Global Oil Balance analysis.
E.P.A. finalized a rule providing a waiver for year-round sales. However, slow growth in an already small number of stations selling E15 outside PADD II will hinder sales. Meanwhile, D4 RIN prices will decline in the second half of the year. It will lower compliance costs for refiners in the second half. Significant upside risk remains, though, with the impact of small refinery waivers and recent storms uncertain.
Oil and Gas Journal: US President Donald Trump announced that he would impose a 5-25% tariff on all Mexican goods. There are ways to avoid the tariff on imports of Mexican crude oil, but at this point it is unclear whether those will succeed, according to an analysis from Energy Security Analysis Inc. If not, ESAI says, some refiners will pay more, and some crude will head to Asia.