IMO 2020 as Opportunity in the Downstream Market – Overview of Positively Exposed Refiners/Producers

Introduction and Context

           The necessity to reduce the environmental impact and the higher sustainability of the industrial processes normally is translated in stricter regulations and higher control upon the industries activities, mainly to those that have a high environmental footprint as the crude oil production chain. This fact is positive and welcome, in view of the necessity to preserve the natural resources and the needed technological development to meet these regulations.

           One of the most impacting regulations to the downstream industry in the current and short-term scenario is the necessity to reduce the sulfur content in the maritime fuels, known as IMO 2020, this regulation established which from the maximum sulfur content in the maritime transport fuel oil (Bunker) will be 0,5 % (m.m) against the current 3,5 % (m.m). The main objective is to reduce the SOx emissions from the maritime fleet, decreasing significantly the environmental impact of this business.  

           The maritime fuel oil, known as bunker, is a relatively low viscosity fuel oil applied in diesel cycle engines to ships movement. Before 2020, the bunker was produced through the blending of residual streams as vacuum residue and deasphalted oil with dilutants like heavy gasoil and light cycle oil (LCO), due to the new regulation, the major part of the refiners will not be capable to produce low sulfur bunker through the simple blend.

           Due be produced from residual streams with high molecular weight, there is a tendency of contaminants accumulation (sulfur, nitrogen, and metals) in the bunker, this fact makes difficult meet the new regulation without additional treatment steps, what should lead to increasing the production cost of this derivative and the necessity to modifications in the refining schemes of some refineries.  

Alternatives to Comply with IMO 2020

           The first alternative to meet the MARPOL 2020 is the control of the sulfur content in the crude oil that will be processed in the refinery, however, this solution limits the refinery operational flexibility and restrict the slate of crude suppliers which can be a threat in scenarios with geopolitical instabilities and crude prices volatility.

According to related by McKinsey Consultancy and presented in Figure 1, just only a small part of crude oils are capable to produce an atmospheric residue that meets the new requirement to the bunker sulfur content.  

Figure 1 – Availability of Low Sulfur Atmospheric Residue (Source: McKinsey Energy Insights' Global Downstream Model)

Due to the limitation in the supply of low sulfur crudes, the use of residue upgrading technologies aiming to adequate the contaminants content in the streams applied in the production of the bunker is an effective strategy.

Available technologies to processing bottom barrel streams involve processes that aim to raise the H/C relation in the molecule, either through reducing the carbon quantity (processes based on carbon rejection) or through hydrogen addition. Technologies that involve hydrogen addition encompass hydrotreating and hydrocracking processes while technologies based on carbon rejection refer to thermal cracking processes like Visbreaking, Delayed Coking, and Fluid Coking, catalytic cracking processes like Fluid Catalytic Cracking (FCC) and physical separation processes like Solvent Deasphalting units.

The deasphalting process is based on liquid-liquid extraction operation where is applied light paraffin (propane, butane, pentane, etc.) to promotes resins solubilization inducing the asphaltenes precipitation, that correspond to the heavier fraction of the vacuum residue and concentrate the major part of the contaminants and heteroatoms (nitrogen, sulfur, metals, etc.). The process produces a heavy stream with low contaminants content called deasphalted oil (Extract phase), that can be directed to produce low sulfur fuel oil (bunker), and a stream poor in a solvent containing the heavier compounds and with high contaminants content, mainly sulfur, nitrogen, and metals called asphaltic residue (Raffinate phase).

The processes ROSE™ licensed by KBR Company, UOP-DEMEX™ licensed by UOP and the process SOLVAHL™ licensed by AXENS are examples of deasphalting technologies in supercritical conditions. Figure 2 presents a basic process scheme for a typical deasphalting unit under supercritical conditions. 

Figure 2 – Typical arrangement to a solvent deasphalting unit under supercritical condition 

Delayed coking technology applies the carbon rejection through thermal cracking of the residual streams, however, the streams from this unit still present high contaminant content and chemical instability and require additional treatment steps to allow his use in the production of final derivatives or as intermediate streams to produce low sulfur bunker.

           Among the processes that involve the hydrogen addition, the residue hydrotreating, normally applied to reduce contaminants in feed streams to deep conversion processes as RFCC (Residue Fluid Catalytic Cracking) and hydrocracking, can be applied to treat the atmospheric residue allowing the production of the low sulfur bunker and the compliance with the IMO 2020. Figure 3 presents a process flow diagram for a typical high severity hydrotreating unit. 

Figure 3 – Basic Process Flow Diagram for High Severity Hydrotreating Process Units 

Bottom barrel hydrotreating units demand high severity and increase significantly the hydrogen consumption that normally is a high-cost utility, in refineries without hydrogen surplus will need capital investment to revamp existent process units or to build new hydrogen generation plants. However, to the long-term, technology licensers like Axens, UOP, Exxon Mobil, CB&I, Lummus, Haldor Topsoe, Albemarle among others, still invest in researches to improve the technology, mainly in the development of new arrangements that can minimize the hydrogen consumption (high-cost raw material) and that apply lower-cost catalysts and more resistant to deactivation process.

           Extra-Heavy crude oils or high contaminant content can demand deep conversion technologies to meet the new quality requirements of the bunker fuel oil. Hydrocracking technologies are capable to achieve conversions higher than 90% and, despite, the high operational costs and installation can be attractive alternatives.

The hydrocracking process is normally conducted under severe reaction conditions with temperatures that vary to 300 to 480 oC and pressures between 35 to 260 bar.  Due to process severity, hydrocracking units can process a large variety of feed streams, which can vary from gas oils to residues that can be converted into light and medium derivates, with high value added.

 Figure 4 shows a typical process arrangement to hydrocracking units with two reaction stages and intermediate gas separation, adequate to treat high streams with high contaminants content.  

Figure 4 – Typical Arrangement for Two-Stage Hydrocracking Units with Intermediate Gas Separation

The residue produced by hydrocracking units has low contaminants content, able to be directed to the refinery fuel oil pool aiming to produce low sulfur bunker, allowing the market supply and the competitiveness of the refiners.

Technologies that use ebullated bed reactors and continuum catalyst replacement allow higher campaign period and higher conversion rates, among these technologies the most known are the H-Oil technology developed by Axens and the LC-Fining Process by Chevron-Lummus. These reactors operate at temperatures above 450 oC and pressures until 250 bar.

An improvement in relation to ebullated bed technologies is the slurry phase reactors, which can achieve conversions higher than 95 %. In this case, the main available technologies are the HDH process (Hydrocracking-Distillation-Hydrotreatment), developed by PDVSA-Intevep, VEBA-Combicracking Process (VCC) developed by VEBA oil and the EST process (Eni Slurry Technology) developed by Italian state oil company ENI.

An alternative to the use of low sulfur fuel oil is the installation of SOx and NOx emissions abatement in the exhaustion systems of ships, called gas scrubbers. In this case, the engines keep to burn high sulfur bunker (3,5 % of sulfur) and emissions the reduction will be achieved washing the exhaustion gases with an alkaline solution, among the available technologies we can quote the process BELCO-MS ™ developed by Dupont Clean Technologies Company and the EGCS™ process, commercialized by YARA company. Despite the available technologies, the installation of these systems is expensive and relies on the price gap between the low and high sulfur fuel oil, which should further pressure the refining industry to produce bunker oil that meets the new specifications.   

Aiming to meet the new bunker quality requirements, noblest streams, normally directed to produce middle distillates can be applied to produce low sulfur fuel oil, this can lead to a shortage of intermediate streams to produce these derivatives, raising his prices. The market of high sulfur content fuel oil should strongly be reduced, due to the higher prices gap when compared with diesel, his production will be economically unattractive. 

Refiners Positively Exposed to IMO 2020

           Despite the challenges imposed by IMO 2020, some refiners and crude oil producers are positively exposed to the new regulation. Figure 5 presents some crude oil producers capable to offer low sulfur crude oils.

Figure 5 – Crude Oil Producers Positively Exposed to IMO 2020 (Schroder's, 2018)

As presented in Figure 5, the Brazilian reserves of pre-salt offer low sulfur crude oils with sulfur content varying from 0,3 % (in mass) to 0,67 %. These characteristics of the Brazilian crudes represent a great competitive advantage not only to the downstream sector, but it’s important to consider the valuation of these crudes in the market considering the restrictions imposed by IMO 2020. Nowadays, the pre-salt reserves represent the main crude oil source to Brazilian refineries and the Brazilian downstream sector is able to produce Bunker in compliance with the IMO 2020 since 2019.

           The production route adopted by the Brazilian downstream market involves the blending of atmospheric residue with diesel. The capacity to produce the new Bunker with no capital spending in deep conversion units like hydrocracking and severe hydroprocessing means a great competitive advantage to the Brazilian downstream sector, which once represents lower operating costs and agility to meet the market demand. The characteristics of the Brazilian crude oil allow that the domestic downstream sector operates without hydrocracking units, which normally requires high capital investment.

           This competitive advantage offers great resilience opportunities to Brazilian refiners, especially during the current crises related to COVID-19 where the demand by crude oil derivatives and crude oil prices fall drastically. The exportations of Brazilian crude oils and Bunker in compliance with IMO 2020 represent an important revenue source to the Brazilian oil sector. According to the Brazilian Petroleum Agency (ANP), the Brazilian downstream market reaches the record of Bunker exportations in February with 6,1 million barrels, this represents a growth of 57 % in a relation to January of 2019.

           Despite the competitive advantage observed by the refiners with easy access to low sulfur crude oils, it’s important to understand that this advantage tends to finish when the other refiners conclude the revamp of those refining hardware to comply with the new regulation or the fleet of ships install the gas scrubbers to burn the high sulfur marine fuel. 

Conclusion

           Comply with IMO 2020 put under pressure the refining margins of low complexity refineries and reduced conversion capacity, once there is the tendency to raise the prices of low sulfur crude oils, furthermore, the higher operational costs depending on the technological or optimization solution adopted by the refiner. Refiners with access to low sulfur crudes have a competitive advantage in the short term once are capable to produce the new Bunker applying cheaper routes like simple crude oil distillation or solvent deasphalting in the synergy of blending operations with relatively low quantity of diesel, but as aforementioned this advantage tends to disappear in the middle term.

           The reduction of sulfur content in marine fuel oil represents an important step forward in reducing the environmental impact of our current way of life, but it represents a major challenge for the downstream industry, despite this fact, there are available technologic routes to comply with the new regulation keeping the economic sustainability through high-value addition to processed crude oils.

References:

FAHIM, M.A.; AL-SAHHAF, T.A.; ELKILANI, A.S. Fundamentals of Petroleum Refining.1st ed. Elsevier Press, 2010.

GARY, J. H.; HANDWERK, G. E. Petroleum Refining – Technology and Economics.4th ed. Marcel Dekker., 2001.

FITZGIBBON, T.; MARTIN, A.; KLOSKOWSKA, A. MARPOL implications on refining and shipping market., 2017.

ODEY, F.; LACEY, M. IMO 2020 – Short-term implications for the oil market -  Schroder's, 2018.

Dr. Marcio Wagner da Silva is Process Engineer and Project Manager focusing on Crude Oil Refining Industry based in São José dos Campos, Brazil. Bachelor in Chemical Engineering from the University of Maringa (UEM), Brazil, and PhD. in Chemical Engineering from the University of Campinas (UNICAMP), Brazil. Has extensive experience in research, design, and construction to oil and gas industry including developing and coordinating projects to operational improvements and debottlenecking to bottom barrel units, moreover Dr. Marcio Wagner have MBA in Project Management from Federal University of Rio de Janeiro (UFRJ) and is certified in Business from Getulio Vargas Foundation (FGV).