USGC bunker fuel producers not blending jet fuel

Spanish Market: Oil products
24/09/20

A historic plunge in aviation demand may have cut jet fuel prices low enough for blending into marine fuels on paper, but US Gulf coast refiners are wary of such a move, citing ship engine compatibility concerns and flash point and viscosity issues.

No Gulf coast refineries have been reported blending straight-run kerosene, typically processed into jet fuel, to produce low-sulphur fuel oil (LSFO), according to multiple market sources, despite reports of such practices in Singapore, the world's largest bunkering hub.

Gulf coast sources cited the challenges of the blending process. Too much straight-run kerosene has the potential to lower the temperature at which fuels ignite, known as the flash point, posing a dangerous risk to ship engines. Kerosene molecules are also shaped differently from the heavier fuel oil molecules, which means they resist staying in suspension. Too much light distillate could also create vapor lock issues on ships that run on fuel oil.

The relatively small scale of the bunker market in the US Gulf coast, compared to Singapore, also makes such a move not worth the associated risks, sources say. One market participant estimated a maximum of 40,000 bl of jet fuel components, or roughly 4,700 mt, could be blended into the monthly 4mn mt of LSFO demand in Singapore, where over a dozen very large crude carriers (VLCCs) of LSFO currently reside. In contrast, the Gulf coast market is a fraction of the Singapore market, with no floating LSFO VLCCs in the region.

Yet another hurdle is the still-low LSFO demand, despite a recent rise. LSFO demand in the US Gulf coast has remained relatively thin amid disruptions from Hurricane Laura and tropical storm Beta in the past few weeks. Low demand means blending straight-run kerosene — which increases a supplier's liability to shipowners — is too risky a move to take at this time, sources say.

Jet fuel is more likely being used in US Gulf coast refineries as cutterstock, a light petroleum stream blended to reduce viscosity. LSFO production requires blending lower-viscosity material with high-viscosity residual fuel oil to meet the minimum viscosity specification shipowners prefer for LSFO, which is usually no less than 30cst.

Inverted prices

Technical difficulties, safety and economic risks aside, low jet fuel prices and resurgent shipping demand have inverted the typical pricing relationship between jet fuel and LSFO, making such blending potentially viable on paper.

Jet fuel flipped to a discount to LSFO on 11 August this year, a discount that has widened steadily. Gulf coast Colonial pipeline jet fuel has averaged a $3.47/bl discount to US Gulf coast LSFO so far this month, widening from a $2.51/bl discount in August. A year earlier, jet fuel averaged a $9.14/bl premium to LSFO in September 2019.

The US Gulf coast shipping industry, on the other hand, has strengthened marginally as the US relieved lockdown measures in recent months related to the Covid-19 pandemic. LSFO steadily made gains alongside Ice Brent crude this month, reaching up to $50.08/bl on 1 September, the highest since 6 March. Prices have averaged $46/bl so far this month. LSFO's premium to Brent has also grown to an average $4/bl so far in September, up from $2.65/bl in August.

Part of LSFO's price strength comes from a shortage of vaccum gasoil (VGO), a main blending component for LSFO that does not carry the technical risks of jet fuel. VGO supplies have tightened as low margins cut crude throughput.

US Gulf coast fuel oil production fell to 34,000 b/d as of 18 September, marking the lowest level since 10 July, when levels dove into negative territory, and a 122,000 b/d dip from year-ago levels, according to data from the US Energy Information Administration (EIA).

By Kayla Meyertons and Wendy Dulaney

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05/11/24

South Africa plans to upgrade Sapref to 600,000 b/d

Cape Town, 5 November (Argus) — The South African government plans to repair and expand the closed 180,000 b/d Sapref refinery in Durban, in the KwaZulu-Natal province, creating a facility with at least 600,000 b/d of capacity, according to the Central Energy Fund (CEF). State-owned CEF struck a deal in May to acquire Sapref from BP and Shell. The government wants to upgrade the refinery to ensure that South Africa has security of supply, CEF group chair Ayanda Noah told delegates at the Africa Energy Week underway in Cape Town. "Nowadays, a refining capacity of 600,000 b/d upwards is more economical, and that is what South Africa is aiming for," Noah said. "We are very ambitious." Sapref was South Africa's largest oil refinery with around 35pc of the country's refining capacity before it was shut in 2022 . That followed the closure of Engen's 105,000 b/d Durban refinery in 2020. Only three of South Africa's refineries remain operational — Astron Energy's 100,000 b/d Cape Town refinery, Sasol and TotalEnergies' 107,000 b/d Natref refinery and Sasol's 150,000 b/d coal-to-liquids plant at Secunda. South Africa now only has 35pc of its original refining capacity left, which means it has to import the balance, according to Noah. "You cannot outsource security of supply," she said. "There are many other variables that are outside our control. Look at the geopolitical tensions up north that affects supply chains negatively." Importing around 65pc of oil products is not efficient, especially given South Africa's high unemployment rate, Noah said. "Essentially, what we've done, is export downstream jobs." There is also a negative impact on the balance of payments and the economy, because South Africa cannot control prices, Noah added. It is the role of the CEF as a state-owned company to assist when there are market failures, she said. BP and Shell each owned a 50pc stake in the refinery and were looking to sell the facility after halting operations in 2022. But these plans were set back after extensive flood damage at the plant in April of that year, only two months after it was shut indefinitely. Four years ago, UK-based consultancy Citac estimated it would cost around $15.7bn to upgrade all of Africa's refineries to Afri-6 clean fuel standards, its chief executive Gary Still said in an interview. But those calculations were made before Sudan's 100,000 b/d Khartoum refinery was shut and Ghana's 120,000 b/d Sentuo refinery came online, Still said. It is also likely that the cost of refinery upgrades has increased substantially as goods and services became more expensive after the Covid-19 pandemic, while engineering firms and personnel with the necessary expertise are less available, Still said. By 2030, the African Refiners and Distributors Association (ARDA) wants African countries to meet Afri-6, which imposes a 10ppm sulphur limit on gasoline and diesel, in line with Euro 5 fuel specifications. ARDA's executive secretary Anibor Kragha, described the Sapref acquisition as "phenomenal," because South Africa is "claiming its energy independence through it," he said. By Elaine Mills Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Phillips 66 Calif shutdown to shift tanker flows

05/11/24

Phillips 66 Calif shutdown to shift tanker flows

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EU contributed $31.2bn public climate finance in 2024

05/11/24

EU contributed $31.2bn public climate finance in 2024

Edinburgh, 5 November (Argus) — The EU has contributed €28.6bn ($31.2bn) in climate finance from public sources in 2024 to help developing countries cut their greenhouse gas emissions (GHG) and adapt to climate change, according to the European Council. Around half the funding went to climate adaptation or to cross-cutting action, which involves both mitigation — reducing GHG emissions — and adaptation. Almost 50pc took the form of grants, according to the EU. The €28.6bn includes €3.2bn from the EU budget, including from the European Fund for Sustainable Development Plus, and €2.6bn from the European Investment Bank. The EU said it also mobilised €7.2bn of private finance last year, and it "seeks to extend the range and impact of sources and financial instruments and to mobilise more private finance". The figures were released ahead of the UN Cop 29 climate talks, which open on 11 November in Baku, Azerbaijan. Finance will be a key topic at this year's summit as parties to the Paris deal will seek to agree on a new finance goal for developing nations, following on from the current, but broadly recognised as inadequate, $100bn/yr target. EU negotiators have signalled willingness to support "a stretched goal" with a public finance core, but have yet to provide a figure. Developed countries in general have yet to commit to a number for climate finance, while developing nations have for some time called for a floor of at least $1 trillion/yr. By Caroline Varin Europe's contribution to climate finance €bn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US railroad-labor contract talks heat up

04/11/24

US railroad-labor contract talks heat up

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Canada advances oil and gas GHG cap

04/11/24

Canada advances oil and gas GHG cap

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