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Asian and European Bunker and

Residual Markets
Sharmilpal Kaur, Associate Editorial Director
June 12, 2013

2013 Platts, McGraw Hill Financial. All rights reserved.

Major Asian market trends A Singapore focus on


margins and changing specifications
LSWR/LSFO: Challenges in Asia
Middle East markets Growing storage, growing
markets
Changing legislation what it means and how will it
impact markets

Refinery margins fairly volatile, weak

Source: Platts / Turner and Mason

US cracking margins are highest

Source: Platts/Turner Mason

USGC fuel oil cracks has been coming in

Falling trade, slow steaming bites bunkers

Source: MPA

SINGAPORE FEB VESSEL ARRIVALS FOR BUNKER FUEL AT 2-YEAR LOW OF 2,898
SINGAPORE FEB BUNKER FUEL SALES VOLUME AT 3-YEAR LOW OF 3.08 MIL MT
Singapore (Platts)--13Mar2013/431 am EDT/831 GMT
Singapore's bunker fuel sales volume in February fell to three-year low of 3.08 million mt, down
18.8% from January and down 0.5% year on year, according to data released Wednesday by the
Maritime and Port Authority of Singapore.
Last month's volume was the lowest since February 2010 -- when bunker fuel sales stood at 3.02
million mt -- and follows sales of 3.79 million mt in January this year -- an eight-month high.
--Goh Shu Hui, shu_hui_goh@platts.com
--Edited by Deepa Vijiyasingam, deepa_vijiyasingam@platts.com

Singapore inventories relatively stable

Source: IE Singapore

Arbitrage flows, sources highly variable

Source: IE Singapore

Spore HSFO 380CST crack outperforms


Europe, US

5
0
-5
-10
-15
-20
-25
9

Contrast: FO 3.5% NWE/Brent M1 crack

-5

-10

-15

-20

-25

-30

10

Despite decent crack, HSFO been structurally


weaker in 2013 compared to 2011/2012 levels
Asian HSFO
supported in
winter 2011/12
from off-spec
supplies, low
cutter stocks
availability
But 2012 saw a
moderation in
marine fuels
demand as well as
improved
arbitrage volumes

Source: Platts

11

Lack of blendstocks blowing out viscosity


spread
180/380CST HSFO viscosity spread
25
20
15
10
5
0

12

USGC flows require increased blending


USGC supplies
generally have
specific gravity of
1.02-1.03, Venezuela
has gravity of 0.985,
but can vary, with
spikes in off spec
material
Middle East, Indian
supplies have density
as low as 0.97, and
both reduce supplies
to Singapore in Q1
turnaround season

Source: IE Singapore

13

Proposed tighter specs: ISO 8217


2010

ISO 8217 2010 released on June 15, 2010.

Several changes including reduction in the aluminum and silicon content in residual
marine fuels.

In the RMG 380 and RMK 380 specification a maximum metals content of 60 ppm
has been introduced from the current 80 ppm.

The new standard, among other revisions, reduces the maximum permissible level of
aluminum and silicon in bunker fuel. The new limits range from 25 mg/kg for 10 CST
residual fuel grade to 60 mg/kg for the highest 700 CST grade. The current maximum
limits range from 25 mg/kg to 80 mg/kg for 30 CST to 700 CST.

The new standard also specifies that marine fuel can contain only a maximum 2
mg/kg of hydrogen sulfide. There is no standard for hydrogen sulfide in the current
8217:2005 standard. Sources in the Asia fuel oil market have generally said that they
expect the new specifications to cost between $0.50/mt and $6/mt more than fuel oil
currently being sold in the market.

Some ship-owners strongly prefer the new ISO specification, which they believe will
be easier on engines, while others still take bunker fuel that doesn't follow the new
standards -- preferring instead to get a cheaper value.

Platts continues to study progress in


HSFO specs
Singapore has made it mandatory, but
contractual agreements between buyer and
seller on "specs still stand
Singapore is party to MARPOL Annex VI: sulfur
oxide (SOx) emissions from ships to be cut to
3.5% from current 4.5% effective Jan 1, 2012
In response, all of Platts fuel oil assessments
cargo and bunker markets are now MARPOL
sulfur compliant since July 2012.

Platts specs compared with ISO 8217: 2010


Parameter

Unit

Limit

Platts
180

Platts
380

RMG 180 (ISO 2010)

RMG 380 (ISO 2010)

Density at 15 C

kg/m

Max

0.991

0.991

0.991

0.991

Viscosity at 50C

mm/s

Max

180

380

180

380

Water

% V/V

Max

0.5

0.5

0.5

0.5

Micro Carbon Residue

% m/m

Max

18

18

Conradson carbon residue

% m/m

Max

16

18

Sulfur

% m/m

Max

3.5

statutory requirements

statutory requirements

Ash

% m/m

Max

0.1

0.1

0.1

0.1

Vanadium

mg/kg

Max

200

300

350

350

100

100

Sodium
Flash point

Min

66

66

60

60

Pour point, Summer

Max

24

24

30

30

Pour point, Winter

Max

30

30

Aluminium + Silicon

mg/kg

Max

80

80

60

60

Total Sediment,Potential

% m/m

Max

0.1

0.1

0.1

0.1

Zinc

mg/kg

Max

15

15

Phosphorus

mg/kg

Max

15

15

Calcium

mg/kg

Max

30

30

Distillates remain key driver for margins

Source: Platts

17

As Asia gasoil demand rises and sulfur limits


tighten, impact will be felt in residual fuel

Asia LSWR still higher than Europe, NY due


to short supply, steady demand

LSWR often priced at premium to crude

Source: Platts

20

Residuals: Post Fukushima demand


The sharp rise in
crude oil burning
has moderated
since early 2012
Low sulfur
residuals have
been keenly
sought out by
Japanese utilities
Weakening global
fuel oil of late may
encourage a
further shift

Source: FEPC

21

The Indonesia low sulfur waxy residue spread

Source: Platts

22

LSWR has seen reduced quality,


increased need for cutter stocks
Due to refinery upgrades, Pertamina has reduced quality of LSWR exports, from mixedcracked to V-500 in 2010, and then further to V-1250 in April 2012
The new grade is highly viscous and denser. Needs to be blended to meet Japanese
utility requirements

Properties
Specific Gravity at 60/60 deg F
Kinematic Viscosity at 140 deg F
Viscosity Redwood at l/140 deg F
Sulphur Content
Carbon Conradson Residue
Water Content
Ash Content
Flash Point PMCC
Pour Point

LSWR V-1250 LSWR V-500


Unit
Limit
Test Method
Limit
Min Max
Min Max ASTM / IP / ISO
0.95
0.93 D 1298
CST
321
136 D 445
second
1300
550 IP 70
% Wt
0.35
0.3 D 2622/1552/4294
% Wt
10
10 D 189/524
% Vol
0.5
0.5 D 95
% Wt
0.1
0.1 D 482
deg F
160
160
D 93
deg F
130
130 D 97

But demand is not a certainty moving forward


Japan Tepco's Q2 LSFO demand may fall up to 57% on turnarounds
- traders
Singapore (Platts)--10Apr2013/436 am EDT/836 GMT
Tokyo Electric Power Company's low sulfur fuel oil demand
for April-June is likely to plunge 48-57% year on year due to
scheduled maintenance at three power plants that primarily
burn LSFO for power generation, fuel oil traders
said this week...
--Rajesh Nair, rajesh_nair@platts.com
--Takeo Kumagai, takeo_kumagai@platts.com
--Edited by Deepa Vijiyasingam,Deepa_vijiyasingam@platts.com
Japan's Tokyo Electric to double coal demand with
start-up of two coal units
Perth (Platts)--26Mar2013/656 am EDT/1056 GMT
Japanese power utility Tokyo Electric Power Co.
could double its demand for imported thermal coal to
6.5 million mt/year with the start-up later this year of
two new coal-fired units at its existing Hirono and
Hitachinaka power plants, the company and market
sources said Tuesday...
--Mike Cooper, michael_cooper@platts.com
--Edited by Jonathan Fox, jonathan_fox@platts.com

24

Singapores AG residuals appetite


saturated?

25

ME refinery capacity set to grow 20% by 2016


Iraq, various, total 750
kbd, 2013 onwards

Al Zour, 615 kbd,


2018

Jubail, 400 kbd,


2013
Yanbu, 400 kbd,
2015

Laffan Refinery 2,
146 kbd, 2016

Rabigh, phase 2,
upgrade work,
2016

Ras Tanura Expansion,


+400 kbd, on hold
Fujairah, 200 kbd,
2016
Ruwais, 417 kbd,
2014
Duqm, 250-300
kbd, 2017

Jizan, 400 kbd,


2017

26

Is Fujairah the game changer for the Middle East?

27

Fujairah: Gateway to east and west

A third of total
global oil output

Major suppliers to
east and west of oil
products

Gateway port to
the Arabian Gulf /
Hub for the Indian
Ocean

28

Fujairah also opens crude oil possibilities


New 1.8 million b/d pipeline
exporting UAE oil via Fujairah.
Operational since mid-July 2012.

New refining capacity from 2016 at


Fujairah will also boost products
trading activity.

29

Storage capacity growth

Source: Industry sources

30

Throughput, participants on the rise

Petroleum products throughput at the Port of Fujairah terminal rose from


10.5 million mt in 2010 to 19 million mt in 2012.

Vopak Horizon terminal, which has close to 50% of the emirates total
storage capacity, has seen its throughput rise 20-25% since 2010 to around
25 million mt in 2012.

Bunkering volumes have been steady at around 12 million mt/yr

Recently seen the arrival of a number of relatively new entrants in both


dirty and clean petroleum products trading:
Sinopec, Gunvor, Lukoil, PetroChina, Trafigura, Mercuria, Phillips 66,
Gulf Petrochem, Socar Trading, Concord Energy, BB Energy, among
others.
31

Proximity to Dubai, an international financial hub

Fujairah is just 80 miles from Dubai:


Dubai has emerged as a leading regional commercial hub with
modern infrastructure and a favorable business environment.
Growing pool of professional talent from around the world
Stable political situation over many decades
Growth of financial hub at Dubai has increased the ability of
participants to raise capital locally
Blending costs in Fujairah are 20-30% cheaper than Singapore

32

As the East output rises, Europe refineries


wane...
= upgraded
1.4 million b/d capacity lost
from NWE
200,000 b/d capacity lost
from Mediterranean

= closed
= for sale/
sold

33

Importance of shipping regulations to


fuel oil markets
Most of fuel oil produced is used as bunker fuel, and the
shipping industry grows up to 10% annually on average
About 90% of world trade is carried by the international
shipping industry.
There are around 50,000 merchant ships trading
internationally, transporting every kind of cargo. The
world fleet is registered in over 150 nations
Marine pollution that can be attributed to shipping is now
thought to be lower than 10%.

Two major developments in bunker


specs
Specification changes in the past 2 years mainly
affect global bunker fuel markets
ISO 8217:2010 issued in June 2010 for global
bunker fuel; Singapore has yet to make it
mandatory
Singapore is party to MARPOL Annex VI: sulfur
oxide (SOX) emissions from ships to be cut to
3.5% from current 4.5% effective Jan 1, 2012
SOX emissions to be further cut to 0.50% from
Jan 1, 2020, subject feasibility review by 2018

MARPOL - International Convention for the Prevention


of Pollution from Ships

MARPOL adopted on November 2, 1973 at IMO and


covered pollution by oil, chemicals, harmful substances
in packaged form, sewage and garbage
Annex VI Prevention of Air Pollution from Ships (entered
into force 19 May 2005)
The regulations set limits on sulfur oxide and nitrogen
oxide emissions from ship exhausts as well as
particulate matter and prohibit deliberate emissions of
ozone depleting substances.
Emission control areas set more stringent standards.

NOX emissions also to be reduced


Progressive reductions in nitrogen oxide (NOX)
emissions from marine engines were also
agreed, with the most stringent controls on socalled "Tier III" engines, i.e. those installed on
ships constructed on or after 1 January 2016,
operating in ECAs.
The revised Annex VI ll entered into force on 1
July 2010,

MARPOL Annex VI

Main changes to MARPOL


Annex VI will see a
progressive reduction in
SOX emissions from
ships, with the global
sulfur cap reduced initially
to 3.50% (from the current
4.50%), then progressively
to 0.50 %
The limits applicable in
sulfur Emission Control
Areas (SECAs) will be
reduced to 1.00%,
beginning on 1 July 2010
(from the current 1.50 %);
being further reduced to
0.10 %, effective from 1
January 2015.

Date

Sulfur Cap

Reach

Before Jan 1,
2012

4.5%

Globally

Jan 1, 2012

3.5%

Globally

Jan 1, 2020

0.5%

Globally (subject to
review in 2018)

Jan 1, 2025

0.5%

Globally if not
implemented in
2020

What are SECAs?


Under Marpol, global bunker fuel sulfur reduced to 3.5% at 2012,
0.5% by 2020/2025, SECAs, have lower limits
Current SECAs established in the North Sea and Baltic Sea
North America SECA north of the Mexican border. Low sulfur
fuel oil demand has fallen globally in the past decade.
Locations of fuel supply may not match SECA demand locations.
Volume of relatively inexpensive fuel will be limited.

SECA areas in Europe and North America

Date

Sulfur limits in SECA


areas

Prior to July 1, 2010

1.5%

From July 1, 2010

1.00%

From Jan 1, 2015

0.1%

HSFO: Countdown to distillates replacement?


Singapore is party to MARPOL Annex VI: sulfur oxide (SOx) emissions from
ships cut to 3.5% from previous 4.5% effective Jan 1, 2012
Further MARPOL caps will limit sulfur content in all marine fuels to 0.1%
from Jan 2015 in Emission Control Areas, and 0.50% globally from Jan 2020
(subject to review in 2018)
To achieve those goals residuals would likely need to be replaced by
distillates fuels, or LNG
The push for lower sulfur already growing across Asia eg Hong Kong

Options to meet tighter sulfur specs


Take the refining option:
Refine low sulfur bunker fuel
- Process only low sulfur crude oil.
- Remove sulfur from the bunker fuel produced
from higher sulfur crude oils.
- Convert bunker fuel components to MGO range
lighter products and remove the sulfur from
those
- Convert bunker fuel components into high
speed diesel and remove the sulfur from those.

Options to meet tighter sulfur specs

Make use of scrubbing


technology
LNG for bunker fuel

Global Fleet Age Profile (years old)

Over 30
28-30
15-22
New build - 14

Source: Clarkson Research Services Ltd.

Questions/comments?
Sharmilpal.kaur@platts.com