Topics in this section: IMO 2020 helps U.S. refiners as distillate demand surges U.S. refiners can benefit From IMO 2020 sulfur rules U.S. shale revolution adds light crude oil volume to the mix
This article is by contributing analysts Fernando Valle and Jonathan Mardini from Bloomberg Intelligence. It was first published on the Bloomberg Terminal.
IMO 2020 helps U.S. refiners as distillate demand surges
The International Maritime Organization's new sulphur standards for maritime (bunker) fuel will help margins of U.S. refiners, whose highly complex systems can produce more low-sulphur products than their global peers. The change should boost demand for diesel in the short term, at the expense of fuel oil.
Complex refiners benefit from a wider spread between low-sulfur, refined-product prices and high-sulfur fuel oil that can be used as feedstock. The highly complex U.S. refining industry can process and desulfurize heavy sour feedstocks into incremental shares of low-sulfur, refined products. IMO 2020 will likely lower the demand for high-sulfur fuel oil and consequently create a source of cheap feedstocks for U.S. refiners at the expense of simpler refiners in Asia, Africa and Latin America.
Valero has the largest coking capacity in the world, allowing it to produce a higher proportion of clean products from heavy crude oil and gasoil. BP, Marathon Petroleum, Phillips 66, PBF Energy, Royal Dutch Shell, Chevron and Exxon Mobil also have complex refining capacity in the U.S.
A shifting crude slate will reduce the yield of high-sulfur fuel oil for each barrel of crude processed and improve refining margins if the sweet-sour spread widens for refined products. Production from U.S. shale is increasing the share of light sweet oil in the crude diet of refiners. Shale production in the U.S. has grown almost 5x since 2011 and is expected to continue expanding as the Permian Basin becomes the most important source of supply in the country.
The Gulf Coast is the largest exporting region in the U.S. and has the most complex refineries, with an average Nelson Complexity of 11.7 vs. the global average of 9.1. The region sources light oil from U.S. shale producers and imports heavy crude from Canada, Mexico, Venezuela and elsewhere.
