Raw materials 2022: European marine fuel sees its availability reduced

Strong points

Marine fuel supply tightness will last until 2022

The wide Hi-5 distribution encourages the installation of the scrubber

Record LNG Prices Lead to High Sulfur Fuel Oil Consumption

Rising refinery costs impact demand for raw materials

Tension in European fuel oil markets will persist until the first quarter of 2022, as rapid and high demand is expected to weigh on availability.

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The 0.5% S marine fuel forward curve currently shows a sharp drop in prices between January and February 2022 to give a retroactive structure of $ 6.5. This structure is kept lower on the curve, with an offset of $ 4.75 / mt between February and March and refineries will seek to capitalize on this rapid strong demand.

“You have [the] sinus [refinery] still does not exist, and some of ENO’s refineries have only recently started producing [VLSFO] again, “commented one trader.” I think all of these [refineries] who can produce it do, ”the source added.

In addition, the increased demand for fuel oil in Europe could make the complex even more airtight. Sweden has started an oil-fired backup power plant to help alleviate a power shortage in neighboring Poland from December to February. An unforeseen outage of the Norwegian Troll field, the shutdown of a major pipeline delivering Algerian gas to Spain and uncertain prospects for Russian gas supplies will reduce LNG supplies, potentially leaving room for demand. increased fuel oil, according to Platts Analytics,

However, the lingering uncertainty around the emerging variant of the omicron makes sources reluctant to declare a bull market for marine fuel. Marine fuel entered in 2021 as the most cost effective transportation fuel due to refinery reductions for gasoline and jet fuel. As of 2022, 0.5% S is behind on both products.

HSFO in the spotlight again

The implementation of the IMO 2020 sulfur cap has led to speculation about the future of high sulfur fuel oil as a bunker fuel. However, the growing gap between 0.5% S and 3.5% S fuels – known as Hi-5 spread – is prompting shipowners to install washing facilities, which allow ships to burn HSFO less. expensive instead of LSFO. The Hi-5 spread averaged $ 132 / mt in November, compared to an average of $ 90 / mt in January.

Platts Analytics expects scrubbers to be installed on 21% of ships by 2023, rising to 28% by 2030. Despite concerns about the future availability of HSFO as a marine fuel, it is evident that this will not lead to zero. short-term share. On the bunkering markets, HSFO experienced strong vigor in 2021, with prices at their highest since October 2014. Given the increased use of scrubbers on ships and the significant expenditure to do so, shipowners are not no incentive to abandon high sulfur content as a source of bunker fuel. in 2022.

However, one area where analysts predict HSFO could weaken is in the adoption of biofuels. This is ahead of IMO 2030 regulations, according to which the maritime industry must reduce its total carbon emissions by 40% by 2030. In 2021, we have already seen an increase in the use of biofuels , many shipping companies experimenting and investing in alternative fuel sources.

Additionally, record LNG prices in 2021 have prompted many Asian utility companies to turn to HSFO as an alternative for power generation. European HSFO exports to Asia in November totaled 1,091,000 mt – the highest amount since March, according to Kpler shipping data.

“I expect the same [strong HSFO demand] until now. I think the summer could put some stress on the demand for electricity and that there are not enough barrels of fuel oil in the Persian Gulf, Bangladesh and Pakistan, ”said an oil trader, adding that high LNG prices would likely continue to create a bid for HSFO. in Asia in 2022.

Refinery costs continue to rise

Soaring natural gas prices have also pushed up electricity and hydrogen costs for refineries. Less integrated refineries, such as those found in the Mediterranean, are more exposed to gas price volatility, and these refineries have already started to cut back on high gas prices.

“By the first quarter of 2022, European vacuum diesel seems to be weaker. Natural gas is just too expensive right now, ”said a European commodities trader. “People are even thinking of shutting down DHCs [Distillate Hydrocrackers] hydrogen is used in secondary units such as DHCs to produce clean products such as diesel from VGO. Therefore, the prices of natural gas and hydrogen may impact the demand for VGO.

Platts Analytics expects higher cycle reduction potential for Mediterranean refiners who are “unable to hedge exposure to high natural gas prices”, while cycles in northwestern Europe are expected to grow. ‘improve in Q1 2022 from 2021, but will remain below 2019. “We expect cycles to reach 1Q20 levels not start until 2Q22,” Platts Analytics said.

S&P Global Platts valued the Dutch TTF contract – a key benchmark for European gas prices – at 182.78 Eur / MWh (206.51 / MWh) on December 21, a new all-time high. Prices are still significantly high compared to a year ago, when the benchmark was valued at 16.85 euros / MWh for the same date.

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About Natalee Broderick

Natalee Broderick

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