Lower sulfur fuel shift underway: Phillips 66

Up to 90pc of the global marine fleet will be using compliant fuel in December, Phillips 66 said today.

Storage tanks began converting to supply lower-sulfur fuels in August and demand for the fuel could reach 50pc of the fleet in November, Phillips 66 vice president of investor relations Jeff Dietert said on a quarterly earnings call. Most vessels would need to have converted by December in order to meet low sulfur regulations for long haul voyages that land in January, he said.

"We think 75-90pc of the fleet will have switched in December," Dietert said. "So we will start to get a good view of what this market starts to look like."

Most global shippers must reduce emissions beginning in January to meet International Maritine Organization (IMO) requirements. The shift, called IMO 2020, reduces acceptable emissions levels from the current 3.5pc sulfur fuel to 0.5pc sulfur.

US refiners expect the change to be a boon for their complex coking refineries and to global distillate demand. Blendstocks needed to supply shippers with compliant fuels will compete with both US gasoline and on-highway diesel for space in especially coastal US refineries.

The rule will force changes in refining feedstocks as well. A vanishing market for high sulfur fuel oil will reduce global demand for more sour crudes as refiners lacking the complex equipment to remove sulfur will turn to sweeter feedstocks or sell the fuel oil into a distressed market.

Phillips 66 had experimented with runs of 1,000-5,000 b/d of higher sulfur intermediates across its system. Coking refineries interested in picking up higher sulfur intermediates as cheap alternatives to crude would find themselves limited by the storage tanks and pipelines needed to handle the material, he said.

"I think logistics are going to be a big restricting factor," Dietert said. "Many plants are not set up to bring in large volumes of heavy intermediates."

source: Argus Media