IP Week Day One

OPIS kicked off IP Week with our annual party at Park Lane Nobu. A great night was had by all, and I learned there is such a thing as too much Prosecco. I’ll post some photos soon.

But we all know IP Week isn’t all about the parties. (or do we?) Nevertheless, I headed off to the Platt’s London Oil Forum early on Monday, to find a sea of middle-aged men in suits smoking outside the Mayfair hotel, but all round in a better mood than last year.

Dominating discussion was middle distillates demand and Brent assessments. As flagged in the morning’s Financial Times, price reporting agency Platts formally announced it would include Norway’s Troll in its basket of crude sources for its Dated Brent assessment from Jan. 1, 2018.

The FT article talked about growing competition from the rival West Texas Intermediate crude future, and with North Sea crude diminishing, it’s clear that something has to happen.

Troll will add about 200,000 b/d, or about 20% of deliverable crude supply, to the North Sea basket, and see Statoil overtake Shell in dated Brent production. Now THAT will make for some interesting positions over the next two years especially as it won’t initially have a premium attached to it…

It’s said there were more than 600 participants at the Platts London Oil Forum, and that was clear at lunch time when the food was all gone by 12.10pm, as locust-like hungry delegates descended on sandwiches and wraps.

The most bullish news was TS&P Global’s oil forecasting division, PIRA, predicteing Brent crude to be at $65 to $70/bbl by the year’s end. But that bullish forecast was belied by real-time polling at the forum which was at odds with the OPEC-accord fuelled optimism.

We were all given ipads to use for the polling (I wondered about the security of these, I guess some sort of tracker to ID any light-fingered oil types). Some 60%  of those asked and responded said they believed there would be global oil surplus by the year’s end, a scenario that could weigh on prices.

The Trump factor inevitably weighed on views, with Border Adjustment Tax Reform seen as positive for the WTI crude index. “The WTI-Brent spread will look different next year,” the conference was told. By contrast, Brexit was expected to have little impact on global oil markets.

A breakout session about middle distillates at the Platts forum later highlighted improved fortunes for middle distillates, though the forum mood was a little more bearish than initial numbers suggested. Global demand growth for 2017 was forecast at 1.7%, versus 0.7% the prior year, on the back of return to normal winter weather in the northern hemisphere.

However, supplies from new refineries, especially those in the Middle East seem to be meeting fresh demand, and the VW emissions scandal was top of mind. Another real-time poll supported a pessimistic outlook for diesel car sales.

But the uptake of marine diesel when global shipping regulations mandate an end to 3.5% sulfur fuel oil remains the wildcard in distillate fortunes. This is turning up at every session I go to now.

 

Demand for marine diesel in 2020 remains uncertain, with oil industry forum participants split over how international shipping will meet new lower-sulfur bunker requirements once  new regulations kick in.

Some 16% of those polled in real-time at the London Oil Forum said that distillates would comprise less than 5% of bunker fuels, while 25% believed they would comprise 5-15% of the market. Another 32% said distillates would supply 15-25% and 27%, more than a quarter of the world’s bunker fuels.

The poll reflects uncertainty over whether refineries will de-sulfurise fuel oil or blend higher-sulfur fuel oils  to meet the emission standards, or whether shipowners will switch to distillates.

At the Baltic Exchange tanker derivatives forum in the afternoon, Howe Robinson analyst Stavroula Betsakou gave probably the best assessment of the day.

Refiners are waiting for the shipping industry to give them a signal about what direction they’d like to take, and shipping is waiting for refinery to indicate what path they’re going to take, she told the forum. Neither is known for being forward and progressive!

They are probably waiting for each other, which means any decision about how shipping will handle the switchover will be decided at the last minute, according to Howe Robinson analysis.

Betsakou believes initially the industry will use readily available distillates. But within five years, as refiners can accommodate and assess the lie of the land, shipping will switch over to using 0.5% fuel oil, she said. Any change will be price driven, she added.

So another day and night of parties ended with me feeling very sorry for all those Lloyd’s employees who can’t drink at lunch any more. Oil and shipping couldn’t be any different.

 

Rosneft to Target Mediterranean With 1 Million Tons of Jet Fuel Exports

State-controlled Russian oil company Rosneft aims to capture jet fuel market

    share in the Mediterranean when it begins shipping up to 1 million tons a year

    of the middle distillate from the Black Sea port of Tuapse from 2018.

    An upgrade at the nearby Tuapse refinery due for completion next year means the

    terminal will have annual capacity to ship 1 million tons of jet fuel meeting

    European specifications, Kirill Molodenkov, chief commercial officer at Rosneft

    Aero, told the Platts Middle Distillates conference in Antwerp this week.

    European imports of Russian jet fuel have climbed since 2015, and are shipped

    mainly from the Baltic port of Ust Luga, where gas producer Novatek opened a

    gas condensate processing complex, to Scandinavian destinations.

    Most of Rosneft’s jet fuel now goes to the domestic market, Molodenkov said.

    But the Mediterranean, including nearby countries such as Turkey, would be the

    “main destination” for jet fuel produced from the upgraded refinery, he said.

    Rosneft has nine refineries according to its website, which says when completed

    capacity at its Tuapse facility will be at 12 million tons a year. Oil refining

    depth, which indicates the percentage ratio of petroleum products (excluding

    fuel oil) to crude oil, will rise. Refining depth will increase to 98.7% from

    54%, according to Rosneft.

    Some 970,000 tons of jet fuel was exported to Europe’s 28 member countries from

    Russia in the first 10 months of 2016, trade data show. Volumes totaled just

    under 1.5 million tons in 2015, up from 690,000 tons the prior year.

    Europe produces 14% of the world’s jet fuel and consumes 19%, according to the

    Rosneft conference presentation, citing figures from IHS Energy. This is

    expected to fall to 10% and 16% by 2040 as jet fuel production and consumption

    shifts east.

    World consumption is measured at 292 million tons in 2015, with Rosneft

    forecasting annual growth in demand of 1.2% a year, rising to 357 million tons

    by 2030.

    –Michelle Wiese Bockmann, mbockmann@opisnet.com

Cloudy Outlook For Shipping Fuels

Last week I went to the Platts Middle Distillates conference, where marine fuels dominated the two-day event. Even though it’s just 35 months before the shipping industry changes bunker fuels, how this will happen is by no means certain.

Read on:

Uncertainty surrounds the uptake of marine distillates by international

shipping when global regulations from 2020 mandate a shift to fuel with a

sulfur content of 0.5%, from current levels of 3.5%.

The sector can still use fuel oils, but blended to lower sulfur content, or

shift to marine distillates, or affix ships with scrubbers to reduce sulfur

content from 3.5% marine bunkers. There’s little guidance on the favored

option.

However post-2020 distillate and fuel oil forecasts given at the Platts Middle

Distillates conference in Antwerp reflected some views and challenges for

refiners and traders seeking to anticipate distillates demand.

JBC Energy forecast that low-sulfur fuel oil would largely fill the gap. The

Vienna-based consultancy believes about 27% of bunkers will use 0.5% fuel oil,

rising sharply from today’s negligible market share.

The use of gasoil, (marine distillates) was seen as largely unchanged in JBC

Energy’s presentation. Production of low-sulfur fuel oil would “require

significant changes in refining operations, with secondary feedstocks being

redirected into the bunker blending pool,” Andrada Irimie told the conference.

Shipbrokers BRS signaled the opposite — forecasting a collapse in residual

fuel oil consumption and a switch to gasoil. Fuel oil consumption in shipping

was estimated to fall from around 3.1 million b/d in 2019 to nearly 1.5 million

b/d the next year.

Gasoil consumed by international ships was estimated to rise from just over 1

million b/d in 2019 to 3 million b/d once the new regulations arrived.

Andrew Wilson, head of BRS Energy Research, said the prospect for blending and

hybrid fuel oils appeared bleak because of a lack of suitable low sulfur

feedstock and the expense of building desulfurization units.

Veritas Petroleum Services, which tests bunker and other fuels, also supported

a switch to distillates.

VPS said heavy fuel oils with 3.5% content now comprised 76% of market share

for shipping, while distillates with a maximum sulfur content of 1% had 10%.

The latter is currently used in emission control areas in the U.S. and

northwest and Baltic Europe.

By 2020 distillates of 0.1 to 0.5% sulfur content would take 41% of the market,

with 0.1% distillates at 23% and heavy fuel oil of 3.5% at 26%.

By 2030 this would change again, with 01.-0.5% distillate comprising 54%, 0.1%

distillate below 10% and heavy fuel oil at 25% market share.

Flashpoint, cold flow properties and the inability to mix some blends in tanks

with others were among the points considered in making the forecast, VPS said.