Refinery shutdowns support Asian fuel oil
Asia-Pacific fuel oil demand could weaken in the first half of 2018, pressured by lower consumption from power utilities. But refinery upgrades and turnarounds are likely to curb supplies, supporting the market.
Demand for fuel oil as a power generation fuel is likely to remain weak, as Asia-Pacific utilities switch to cleaner fuels such as gas and renewables. South Korean utility demand for fuel oil has fallen sharply as utilities turn to coal and natural gas to compensate for shutdowns at nuclear power plants. Korea Western Power and Korea East-West Power issued tenders to import just 280,000t (1.8mn bl) of 540cst high-sulphur fuel oil (HSFO) during January-November, down by a sharp 85pc from around 1.8mnt in the year-earlier period. Pakistan’s fuel oil demand has also fallen sharply after severe air pollution in October sparked an abrupt shift to cleaner power generation fuels such as LNG. The government has ordered oil-fired power plants to halt the use of fuel oil.
Weaker utility demand could be offset by major turnarounds scheduled at refineries in the Mideast Gulf during the first half of 2018. ExxonMobil and state-owned Saudi Aramco’s Samref joint-venture 400,000 b/d Yanbu refinery is scheduled to have a turnaround over March-April. The Shell-Aramco Sasref joint venture’s 305,000 b/d Jubail refinery has also scheduled a turnaround for January-February. Singapore imported about 2.3mn-2.4mn t of fuel oil from Saudi Arabia during January-November, similar to levels a year earlier.
The 270,000 b/d Mina Abdullah and the 466,000 b/d Mina al-Ahmadi refineries operated by Kuwait’s state-owned KPC are scheduled to have turnarounds during March-April and April-May respectively. Kuwait typically keeps its fuel oil for power generation purposes, but exports during periods of milder weather when demand falls. Singapore imported over 1.2mn t of fuel oil from Kuwait during January-November, up from just over 900,000t in the same period a year earlier.
Structural changes threaten output
Longer term factors could also hit output. Regional refineries have announced projects to curb residual fuel oil production, with the impact starting to be felt as early as 2018.
South Korean refiner S-Oil is poised to reduce its fuel oil output when it starts new secondary units at its 580,000 b/d Onsan refinery in 2018. Onsan’s 76,000 b/d residual fluid catalytic cracker (RFCC) and 50,000 b/d residual hydrodesulphuriser are scheduled to start commercial operations in the first half of the year, with the new RFCC unit potentially reducing fuel oil production by 50pc from the second half of the year. Onsan currently produces about 35,000-40,000 b/d of fuel oil, almost all of which goes to the domestic bunker market. S-Oil might need to import fuel oil to meet its domestic bunker market obligations after the new unit comes on line.
KPC expects Kuwait to become a net importer of fuel oil for around a year after its clean fuels project (CFP) is brought fully on line in late 2018 and before the start-up of commissioning activity at the planned 615,000 b/d al-Zour refinery in late 2019. The CFP will integrate the country’s two refineries and crack all fuel oil to higher value products. There is a detailed plan in place to import fuel oil for power generation until the start-up of al-Zour, which is designed to supply 0.9pc sulphur fuel oil.
The likelihood of a fall in exports because of the heavy turnaround schedule early next year may continue to support regional fuel oil prices in 2018. The market has already strengthened compared with a year earlier. The 180cst HSFO cargo price averaged $368.33/t fob Singapore in November, a 33pc rise from a year earlier, while the average 380cst HSFO cargo prices rose by 36pc over the period to $365.511/t.