Key steps for refiners ahead of IMO 2020 (ERTC)
The reality is that many refiners remain unprepared for IMO MARPOL 73/78 Annex VI (IMO 2020). These regulations, which will substantially tighten the global cap on the maximum sulphur content of marine fuel oil, could have a major impact on an ill-equipped refiner’s profitability.
Jock Hughson and Biliana Oettler
Shell Global Solutions
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Fortunately, it is not too late; they could implement several low-cost solutions in the next two years to safeguard their competitive position.
Because of IMO 2020, which will cut the allowable sulphur content of marine bunker fuels from 3.5 to 0.5%, from 2020 refiners can expect demand for high- sulphur fuel oil (HSFO) to fall, demand for low-sulphur fuel oil (LSFO) to increase and a corresponding price differential between the two to open up.
This is because ships will only be able to continue using HSFO if they are fitted with on-board scrubbers, but these are costly and it will only be possible to convert a modest percentage of the world’s fleet before the new global cap comes into force. Liquefied natural gas conversions are inappropriate for most ships, so the majority will turn to LSFO from 2020.
Fortunately, the LSFO–HSFO price differential is likely to close partially over time as scrubber technology improves and conversion facilities are built. So, there will still be a market for HSFO and refiners do not necessarily need to eliminate their HSFO exposure entirely, but they would be well advised to reduce it to sustain their competitiveness.
How should you respond?
Figure 1 shows some of the technology solutions to be considered, but there is no one-size-fits-all answer. Your optimum solution depends on various factors, including your existing configuration, strategy, available capital and location.
For example, the highest residue conversion technologies, which include ebullated-bed residue hydrocracking and slurry-phase residue hydrocracking, will not provide the optimum solution for many refiners, in part because they are extremely capital intensive.
Similarly, the answer may be different for those who have a need to improve their crude flexibility in order to improve margins, or those who have secure, reliable HSFO outlets, or those who have key constraints in key units such as the vacuum distillation unit or hydrocracker.
Shell’s response to IMO 2020
At Shell Global Solutions, we have been looking at our own facilities and those of our customers to help identify the best responses. The business case for some of the integrated solutions, which often involve revamping an existing process unit, has tended to be far stronger than for installing new high residue conversion technology.
For example, a solvent deasphalting (SDA) unit can be added for comparatively moderate capital expenditure (capex). Simultaneously revamping the hydrocracker can help to reduce HSFO production by almost 50%, increase middle distillates yield and improve crude flexibility.
The combination of SDA and deasphalted oil hydrocracking, or SDA and thermal conversion, which is another moderate-capex response option, has another important advantage: it retains high levels of crude flexibility. This is becoming an increasingly important profitability driver for refiners. There are large opportunities for refiners to increase margins by including lower-priced, opportunity or niche crudes in their diet, so you should always evaluate the effect that your investments will have here.
Another crucial consideration is the refinery’s back end. When increasing the level of residue conversion, by either revamping process units or installing new ones, the treating and utility systems and logistics infrastructure can often be key constraints. Additional capacity is likely to be required for sour water strippers and wastewater treatment plants, and particularly the sulphur recovery unit. Fortunately, the state of the art has recently advanced here with the development of Shell’s next-generation tail gas treating process, SCOT Ultra, which offers a performance step change for minimal investment.
Of course, the gestation period of all such projects is likely to extend beyond 2020, so it may be too late to initiate such a response now to reap the benefits of the expected LSFO–HSFO price differential. They may remain options for the long term however, although refiners who have not already committed to this type of long-term high-capex investment are likely to delay making an investment decision until at least 2019 when the supply, demand and economic implications of IMO 2020 should become clearer.
So what changes could you implement before 2020? Among the low-capex, quick-win solutions that have scored highly in our analyses is Shell’s deep-flash technology, which can help to lift more and better quality vacuum gas oil (VGO) from the vacuum distillation unit and reduce HSFO production. Another popular solution is installing latest-generation reactor internals and catalysts, which can enable the hydrotreating and hydrocracking of heavier and more difficult feeds such as deasphalted oil, heavy VGO and visbreaker VGO, and increase conversion capability.
Another quick-win opportunity is to change the crude diet to include a proportion of opportunity crude. For a typical 200,000 bbl/d refinery, the inclusion of 10% of an opportunity crude with a relative discount of $1/bbl could increase the gross refinery margin by some $7 million a year. Moreover, this will typically require no capex.
The importance of first developing a robust investment plan tailored to your specific circumstances cannot be overemphasised. You can only identify the optimum solution by taking into account your specific constraints and by using tools such as scenario planning to help you take a view of the future market in which you will be operating.
Residue upgrading beyond IMO 2020
IMO 2020 is a short-term trigger, but the business case for residue upgrading projects is likely to remain strong beyond 2020. Margin improvement will probably still be strategically important and so reducing the yield of low-margin fuel oil in favour of a higher-margin product slate will be key for the longer term.
IMO 2020 will have a disruptive effect on refiners in several ways. It will cause a price gap to open up between LSFO and HSFO that only the best prepared and equipped refiners will benefit from, and this gap will close partially over time. To fully reap the benefits of this price gap, a refiner would need to have already invested in a medium- to high-capex solution that suits their particular circumstance. Those who have not chosen to make a significant investment by now are likely to continue evaluating the various options and will not initiate a full response in time for 2020.
Nevertheless, refiners would be well advised to focus on what they can achieve ahead of 2020. From installing deep-flash technology and revamping with latest-generation catalysts and reactor internals through to including low-cost opportunity crudes in the refinery diet, there are many steps for strengthening competitiveness ahead of the disruption that is inevitable in 2020.
Furthermore, they should remember that IMO 2020 is only the start. Post-2020, residue upgrading investments will continue to provide important margin improvement opportunities as they increase the volume of value-added products.
Did you know: Shell's fouling abatement technologies can help increase cycle length bu up tp 300%?
This short article originally appeared in the 2017 ERTC Newspaper, produced by PTQ / DigitalRefining.
For more information contact: Chris.Egby@CRI-Criterion.com
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