Within the next 10 years, European refiners will begin to produce fuel oil in excess of market demand, while they will not be able to produce enough of other products.
That in turn provides Europe's refiners with an incentive to reduce the sulfur content of high-sulfur fuel oil and to upgrade white products, says Chem Systems Ltd.
Other pressure on Europe's refiners is coming from European Commission (EC) legislation aimed at improving air quality in major cities through changing specifications of transport fuels.
Environmental pressures and market trends towards distillate fuels have forced fluid catalytic cracking (FCC) refinery operators to look for improved product quality and flexibility for pretreating FCC feedstock, says UOP Ltd., Guildford, U.K.
Meanwhile, Brussels-based Oil Companies' European Organization for Environmental & Health Protection (Concawe) reports that new EC legislation on transport fuels is expected to be completed in 2 years.
These views were offered at the European Refining Technology Conference in London last week.
Chem Systems' outlook
Chem Systems Senior Consultant Peter Windbank said western European products demand was balanced across the barrel in 1995.
"In Europe," said Windbank, "overall demand growth for petroleum products is forecast to show some-albeit very modest-growth. Of the total 600 million tons refined product demand in Western Europe in 1995, 105 million tons was for heavy fuel oil, of which 75 million tons was for inland fuel oil and 30 million tons consumed as bunker fuel."
Chem Systems expects heavy fuel oil demand to fall, with inland use expected to drop by 2.6% during 1995-2005, while bunker fuel demand rises 0.7%.
"High-sulfur fuel oil, with sulfur content over 3 wt %, will become increasingly difficult to dispose of," said Windbank. "Its primary outlet will increasingly become the bunkers market, in cement manufacture or as a liquid fuel for combustion use in plants with flue gas desulfurization (FGD) or gasification units."
Windbank said the sulfur content of fuel oil for combustion plants without FGD is likely to be limited to 1 wt % by 2005 and is expected to be lowered even further: "This means that overall sulfur content of the heavy fuel oil pool must be significantly reduced over the next decade."
While refiners will continue to be able to export high-sulfur fuel oil as users increasingly import low sulfur fuel oil, Chem Systems reckons there will be a 25 million-ton/year worldwide surplus of high-sulfur fuel oil in 2000 and a 25 million-ton/year deficit in low-sulfur fuel oil.
"The only region forecast to continue to be in significant deficit for high-sulfur fuel oil is Asia," said Windbank. "All other regions of the world show a surplus of high-sulfur fuel oil and a deficit in low-sulfur fuel oil, apart from the Middle East, which has a surplus in both grades."
Windbank said there is no easy fix to this problem for Europe's refiners, and each must look at its individual circumstances, opportunities, and threats to develop its best investment strategy.
Other markets for high sulfur fuel oil are already effectively closed. Bitumen manufacture has become a specialty market, with refineries running specific crudes. And upgrading to produce petroleum coke is rare in Europe to date, but popular in the U.S., and hence markets are generally well supplied.
Incentives for upgrading
"The technical and market incentives to install residue upgrading units are clear," said Windbank. "The more difficult area is the commercial incentive. If we look at the historical spread between gas oil, gasoline, and high-sulfur fuel oil, we gain little encouragement."
Windbank said the high margins of 1990 would have supported new investment in upgrading plants, whereas current low margins offer inadequate payback; refiners can only hope for a significant widening of the spreads again.
Similarly, the low-sulfur/high-sulfur fuel oil spread offers little encouragement for investment in residue desulfurization, which typically needs about $40/ton differential to justify outlay.
"More and more heavy ends projects are being put forward on the basis of an element of 'must do' rather than stand-alone commercial attractiveness," said Windbank.
"Investments will proceed and indeed must proceed to keep the European industry competitive. In most cases, the investment justification will need to be 'creative' and may need to rely upon factors traditionally considered to be outside of the conventional refinery fence, such as gasification projects. Many will retain the 'wait and see' option."
UOP's view
Orhan Genis, product sales manager at UOP, told delegates refiners are looking at what heating oil production capacity to convert to transport fuel production. He also noted that low capital availability generally makes retrofitting the best option.
"A review of current market quality averages," said Genis, "versus proposed legislation indicates that density, sulfur content, and cetane number are the important criteria in determining the extent of future refinery modifications.
"Within this context, light cycle oil (LCO) from the FCC unit requires special attention because of its inferior quality with respect to these specifications."
Genis said one approach is to use UOP's MHC Unicracking process combined with Unisar technology to add more conversion and product flexibility, so economics of existing vacuum gas oil hydrotreaters can be optimized.
"To meet the needs of the future European market," said Genis, "FCC refineries will be obliged to maximize their transportation diesel production in response to changing demand.
"The required investment for tightened product specifications and the desired product slate can be minimized by making maximum use of existing equipment."
Environmental outlays
John Stapleford of BP Oil Europe represented Concawe, telling delegates refiners are expected to spend $6.6 billion/year in 15 years on new facilities to help meet air quality targets.
Fuel specifications to meet these targets were compiled by EC, car manufacturers, and European refiners under the Auto/Oil program, which uses reduction in nitrogen oxides as a lever to cut all major vehicle exhaust pollutants (OGJ, Nov. 20, 1995, p. 41).
Stapleford said a second round of Auto/Oil program-type fuel quality and vehicle emissions standards is expected to be introduced in 2005.
To help decide what is needed in this, a review of air quality across Europe and the effects of existing legislation will be undertaken in 1997 and 1998.
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