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Forum

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January 30-31, 2020

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Radisson Blu Astrid Hotel | Antwerp, Belgium

S&P Global Platts

Pre-conference interview with our speaker: Massimo Vacca, Strategic Planning and Development Manager, Saras

Oil demand growth is weak. What are the factors and how long will it last?

Massimo Vacca: The slow down recorded in 2019 derived primarily from a bearish cocktail of geopolitical factors. Further into 2020, the improving news flow concerning international trade-disputes, the end of the political deadlock in the UK and the removal of disorderly Brexit tail-risks, along with the rising evidence of a bottoming-out in global growth, could trigger a change in consumer confidence and a pick-up in oil demand.


Which role will IMO regulation play, and what are the long-term implications and opportunities?

IMO regulation will force shipowners to choose among two main options: scrubber installation vs. fuel switching, with the former only recently starting to gain momentum. Therefore, IMO compliance shall initially rely almost entirely on fuel switching, from current High Sulphur Fuel Oil (HSFO – 3.5% sulphur) to a new product called Very Low Sulphur Fuel Oil (VLSFO – 0.5% sulphur) and/or to Marine Gasoil (MGO – 0.1% sulphur).

Such a disruption in the fuel markets, and the additional demand for MGO, shall push refinery utilization higher in 2020, with margins also expected to benefit.

In the longer term, markets will certainly readjust, finding ways to progressively resolve the imbalances (new refineries may come onstream, product yields could vary, more scrubbers will be installed, etc).


What will be the role of middle distillates in achieving IMO compliance?

Massimo Vacca: It’s difficult to predict which fuel choices will be made by the shipowners. Indeed, VLSFO should price lower than MGO, but it may not be available in every bunkering hub. Also, it may be a riskier choice in terms of compatibility, because mixing VLSFO from different producers could lead to asphaltene precipitation, clogging vessel filters and transfer lines, and ultimately damaging the engine.

MGO instead, albeit more expensive, will give shipowners a higher level of comfort, both in terms of availability and in terms of stability, compatibility and engine safety.

Therefore, in the early years of IMO implementation (2020 and 2021) as much as half of the 2Mbl/d of displaced HSFO could be substituted by MGO. In the long run, however, experts agree that VLSFO shall be chosen as the preferred fuel for IMO compliance. Still, MGO will continue to be used in SECA regions to meet the 0.1% sulphur limit (approx. 1.5Mbl/d of MGO demand through 2035).


What expectation can we make for the future of gasoil?

Massimo Vacca: Historically, gasoil demand has been closely linked to GDP trends, because one of the largest applications is commercial road transport (heavy duty trucks, lorries, buses, etc.), followed by use for private transportation vehicles, agricultural sector, marine engines, and heating of buildings and houses.

In recent years, “diesel-gate” (some private cars being equipped with engine management software designed to deceive emission regulations), caused public disapproval, and car sales dropped. However, gasoil consumption in other application fields has not been significantly affected, and its correlation with GDP is expected to hold at least for another decade.

Looking further ahead, demand for hydrocarbons will be undoubtedly influenced by energy transition and decarbonisation policies.


Hear more from Massimo Vacca, Strategic Planning and Development Manager, Saras on day one of S&P Global Platts 10th Annual Middle Distillates Conference on January 30-31, 2020, where he will be presenting on the "Refiners perspective: A changing relationship between distillates and fuel oil".  
 
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For more information about the S&P Global Platts Middle Distillates Conference, please click here