GlobalData’s latest thematic report, ‘IMO 2020’, reviews the preparedness of global refiners in supplying low sulphur fuel oil (LSFO, 0.5% sulphur m/m) to major bunkering hubs, especially in the aftermath of Covid-19 pandemic.
Refineries have undergone extensive upgrades lately to produce high-value fuels, including LSFO. Prior to the pandemic, refiners supplying fuels to bunkering hubs were hoping to profit from the higher price of LSFO. Since Q4 2019, Shell, Total, Sinopec, and some other refiners were stockpiling LSFO at major hubs like Singapore, Antwerp, and Rotterdam for a seamless transition to IMO 2020. Despite this, the spread between LSFO and HSFO had risen to approximately $300 per tonne in January, potentially boosting margins of these refiners. However, this spread narrowed to approximately $60 per tonne by August as countries went into lockdowns to contain the Covid-19 pandemic.
Following the strict implementation of the IMO 2020 regulation, Singapore, the world’s largest bunkering and refuelling hub for marine transport, observed a substantial increase in LSFO sales in 2020. As of October, LSFO accounted for approximately 65% of total fuel oil sales in the Singapore hub.
Singapore monthly bunker fuel sales, 2019–2020, thousand tonnes
Shell’s Singapore-based Pulau Bukom refinery started offering LSFO from September 2019. The country is also receiving very LSFO from the neighbouring Jurong Island II refinery, operated by Singapore Refining Company (SRC). Chevron, a key stakeholder in the SRC, intends to double the supply of LSFO and MGO from this refinery by 2022. ExxonMobil is also preparing to supply LSFO to Singapore from its locally based refinery – the Jurong Island I. The company has taken first investment decision (FID) for refinery expansion and the upgrade is anticipated to be completed by 2023.
Sinopec and PetroChina are leading the charge in producing IMO-compliant fuel for China and overseas markets. Sinopec intends to produce approximately ten million tonnes of VLSFO in 2020 and increase it to 15 million tonnes by 2023. The company exported 37.8 thousand tonnes of VLSFO in 2019 from its Shanghai Petrochemical refinery. Sinopec plans to expand the VLSFO production capacity of this refinery to 1.5 million tonnes per annum in the next few years.
Fujairah, another leading bunkering hub, has three active refineries with two more expected to come online by 2026. The Fujairah II modular refinery came online in 2019 and is operated by Ecomar Energy. The refinery is configured to produce residual fuel for bunkering. Another refinery is expected to be commissioned by Brooge Petroleum by 2021. This could further enhance the availability of IMO-compliant fuels in the near future.