Bunker Fuel: Supply, Demand and Pricing -...
Transcript of Bunker Fuel: Supply, Demand and Pricing -...
Bunker Fuel: Supply, Demand and Pricing
Prepared for
Bunkerworld Business ExchangeHouston – 10 March 2010
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Agenda
Introduction
Residual Demand & Quality
Refinery Supply
Pricing
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Purvin & Gertz, Inc.Technical, strategic and commercial advisory services for the global energy industry
Energy Market Analysis Refinery Valuations Technology Evaluations Crude Oil Valuations Project Finance Assistance Independent Engineer Conferences/Training
Core Competencies
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Purvin & Gertz - Background
Founded in 1947 Independent firm owned by active consultantsConsulting staff of Engineers/MBAs
Join with 10-15 years of industry experience
Technical, commercial and financial experience with an average of 23 years firm-wide
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Ongoing Detailed Analysis of Energy Markets
Global Petroleum Market Outlook Two modules
• Balances updated in March• Price & Margin forecasts updated quarterly
Widely used in oil industry for strategic planning Short-term Crude Oil and Refining Outlook
Separate market reports for tactical planning Other Market Publications
LPG studies North American Natural Gas Global LNG Petrochemical Feedstocks
Special Topic Studies Residual Fuel Canadian Oil Sands China’s Rapid Growth
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Agenda
Introduction
Residual Demand & Quality
Refinery Supply
Pricing
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World marine bunker demand has been increasing as total residual fuel demand remains stable
Million Tons
Residual Fuel Demand
Includes all stationary, domestic and international bunker and refinery residual feedstocks
0
100
200
300
400
500
600
700
1995 1997 1999 2001 2003 2005 2007 2009
15%
20%
25%
30%
35%Feedstocks
Other
Industrial
Power
Bunker
PercentBunker
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Residual fuel oil demand for power generation has been falling in most, but not all regions
Million Tons
Power Sector Residual Fuel Demand
Many large consumers have switched fuels but certain countries will continue to use and even grow oil-fired power generation
0
100
200
300
1995 1997 1999 2001 2003 2005 2007 2009
North America
CIS
Africa
Europe
Latin America
Middle East
Asia
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Global waterborne trade for most categories has grown faster than overall world GDP
Percent Growth in Tonne-Miles vs. GDP, %1986-89 Average (S)
1990-93 Average (W)
1994-2000 Average (S)
2001-03 Average (W)
2004-08 Average (S)
S= Relatively strong global economic growth
W= Relatively weak global economic growth
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Petroleum
Bulk Commodities
Dry Goods
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Global bunker demand expected to decline this year. Long-term growth projected at ~2.5%/yr.
Million Tons
By our estimates, bunker has been growing at nearly 4%/yr on average since 1995
0
50
100
150
200
250
300
350
400
1995 2000 2005 2010 2015 2020
Tankers Bulk Carriers
Container/ Dry Goods Other Vessels
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The globalization of product manufacturing will drive driven bunker demand in all regions
FIGURE II-4REGIONAL BUNKER FUEL DEMAND(Million Tonnes)
0
50
100
150
200
250
300
350
400
450
1995 2000 2005 2010 2015 2020 2025 2030
Asia Middle East Latin America EuropeAfrica CIS North America
Eastof
Suez
Westof
Suez
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IMO sulfur regulation timeline
0.0
1.0
2.0
3.0
4.0
5.0
2005 2010 2015 2020 2025 2030
Global
ECA
% Sulfur, max
Study in 2018 determines availability of LS fuel and start date for 0.5% S limit
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Most immediate regulations relate to ECAs
Current (S)ECAs established in the North Sea and Baltic Sea
U.S. EPA has submitted a ECA request to the IMO in conjunction with Canada
California has issued a Marine Notice that only distillate fuels can be used within 24 n.m. from July 2009
ECAs likely to be adopted in other areas
Norway
Med?
Straits of Melaka?
South Korea?
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RFO bunker consumption is concentrated in a small portion of long-haul vessels
Percent of Global RFO Demand
Percent of Vessels (approx. 100,000 total)
Installing scrubbers on a few thousand of the largest bunker consuming vessels would allow a large portion of bunker to remain high sulfur
- - Use in ECA’s less likely - -
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 5% 10% 15% 20% 25% 30%
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Agenda
Introduction
Residual Demand & Quality
Refinery Supply
Pricing
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Reduction of bunker fuel emissions is a complex inter-industry issue
Requires low cost fuel – very competitive market
Resists capital and added complexity of scrubbers
Facing complex regulatory environment Uncertain ECA and global
regulation schedule
NOx, PM and perhaps CO2
Bunker has traditionally been a low-value by-product
Difficult to envision investing for bunker production
Stranded investment risk if emissions technology evolves
Concerned with magnitude of investment required
Needs clear signal from fragmented shipping industry on fuel requirements
Shipping Industry Refining Industry
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Our study is based on a scenario analysis to understand impact on refining industry
Scrubbing of stack gases, while not commercially available, has the potential to significantly reduce compliance cost
• Degree of scrubber adoption will have a direct effect on refiners• The uncertainty of this variable examined through two scenarios:
Scrubber Compliance – Broad scrubbing adoption key ship types and routes which moderate need for fuel quality improvements
• Moderate refining industry impact
Fuels Compliance – Stringent and disruptive case for refining, suppliers and bunker consumers
• Significant refining industry impact
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Refiners have a range of bunker fuel production options, each with a set of market risks
Diesel
Marine Diesel (DMB/DMC)
HDS VGO
HDS Residue
HS Bunker (Scrubbing)
Fuels
Refinery
Selling
Bunker Fuel
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Diesel
Marine Diesel (DMB/DMC)
HDS VGO
HDS Residue
HS Bunker (Scrubbing)
Fuels
Refinery
Selling
Bunker Fuel
Inc
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Capacity Additions 1998-2008 - Million Barrels per Day
Residue hydrotreating has been added in Asia but most upgrading capacity has been coking and cracking
0
1
2
3
4
5
6
Residue HDS Coking FCC/HCU
OtherEuropeU.S.
Middle EastAsia
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Agenda
Introduction
Residual Demand & Quality
Refinery Supply
Pricing
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Fuel Oil and Bunker Pricing Methodology
Finished Diesel/Gasoil Price (Non-Marine)
1. Refining Conversion Reinvestment Economics
1. Relative LCO Hydrotreating Cost
ECA Bunker Price (0.1%S)
High Sulfur LCO Price/Value
LS Bunker Price (0.5%S)
1. Cost of Production Economics
Low Sulfur Fuel Oil Price (1%S)
High Sulfur Fuel Oil Price (3-3.5%S)
1. Blending Economics (to LS Bunker)
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Bunker market is large enough to shift price relationships in many markets
Currently, LSFO-HSFO spread is small compared to diesel-HSFO
LSFO volumes are small relative to bunker
Adding LS spec to bunker fuel will increase LSFO-HSFO spread
LSFO might move from being a “HSFO plus” product to a “diesel minus” product
Cost of Production
Current Situation
HSFO
LSFO
HSFO
LSFO
MGO/MDO
MGO/MDO
ComplianceScenario
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Investments to produce lower sulfur bunker will raise cost to well above HSFO380
Premium to HSFO380 Bunker, $/T
Includes operating costs and investment return. Return set consistent with alternative fuels investment (coking to produce finished transportation products)
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100
200
300
400
500
2001 2003 2005 2007 2009
Marine Diesel - HSFO380
MDO Coker Cost
Residue Hydrotreating Cost
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In summary . . .
Primary demand driver for bunker fuel is globalization of trade and outlook is good for continued growth
Regional ECAs are most immediate quality change which will result in a shift to distillate-”like” fuels
Longer-term supply of bunkers depends on ship scrubbing developments
Refiners are reluctant to invest for bunker markets and have options
Ship owners face investment or significantly higher fuel costs
Our view is that main engine bunker fuels will cost significantly more but well below diesel prices
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This analysis has been prepared for the sole benefit of Sustainableshipping Conference attendees. Any third party in possession of the analysis may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of the analysis does not carry with it the right of publication.
Purvin & Gertz conducted this analysis utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.
Some of the information on which this analysis is based has been provided by others. Purvin & Gertz has utilized such information without verification unless specifically noted otherwise. Purvin & Gertz accepts no liability for errors or inaccuracies in information provided by others.
About this presentation…
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Residual Fuel Market Outlook Study Outline
Economy & Energy 13 World Regions Diesel/gasoil Stationary Fuel Oil
3 qualities Bunker Fuel
5 qualities Refining Capacity Refinery Supply
5 streams
Diesel/Residual Balances Prices & Margins Three world regions
Rotterdam
Singapore / AG
USGC
Scrubber economics
Refining LS bunker cost of production
Refining margins
Diesel pricing
Fuel oil/bunker pricing
Current and future grades
Crude differentials
Completed for two scenarios
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