Bunkers

Just like there’s room for Amazon and Etsy in the e-commerce world — one for mass marketers and the other for artisans — there’s room in the energy industry for both large- and small-scale LNG companies and plants. By focusing on the development of niche markets and scaling their production and distribution operations accordingly, a number of smaller (but growing) players in the LNG space have been making natural gas available to a surprising variety of customers: from industrial, oil-and-gas and mining companies to rocket launchers, Caribbean resorts and island utilities. ESG is a big driver — the LNG supplied often replaces diesel, fuel oil and propane, which can have bigger carbon impacts. In today’s RBN blog, we continue our series on small-scale LNG with a look at a cross-section of key players in this space and how they’ve been growing their businesses.

Massive LNG export terminals and shipments to Europe get all the attention these days, and for good reason. But there’s a lot more going on with U.S. LNG below the radar, and on a much smaller scale. Peak-shaving liquefaction plants to help gas-distribution utilities up north keep the lights on during high winter demand periods. Plants that make LNG for a wide variety of industrial, mining and oil-and-gas-production customers, and for LNG-powered trucks and ships — often to help reduce emissions and meet ESG goals. And there are a number of small liquefaction plants in the U.S. that export LNG to power-generation and industrial customers in the Caribbean and Mexico. In today’s RBN blog, we begin a short series on an often-overlooked but important market for U.S. natural gas.

In January 2015 new international regulations came into force that reduced the permitted sulfur content in ships “bunker” fuel in Northern European and North American coastal regions. So far, international shipping companies and cruise lines have been responding to these rules primarily by switching to marine gasoil (MGO), burning lower-sulfur fuel oil, or sticking with higher-sulfur fuel oil and adding “scrubbers” to capture most of the sulfur being emitted by their ships’ engines. More recently, though, some of the shipping sector’s biggest players have unveiled plans to boost the use of liquefied natural gas (LNG) as a bunker fuel, figuring that LNG bunkering will not only help them meet existing regulations but the tougher rules likely to be implemented over the next few years. Today, we begin a short series on the opportunities and challenges associated with shifting ships from fuel oil to LNG.

Fuel oil demand has been declining for years on dry land – under attack by regulators anxious to reduce sulfur emissions. New international regulations introduced in January of this year are designed to further reduce sulfur emissions from ship engines burning marine fuel oil (“bunkers”)  at sea. The new regulations have had an immediate impact on the market for 1% sulfur fuel oil. Most affected ship owners are now using more marine gasoil in coastal zones. Today we examine how the new regulations have impacted fuel oil markets.

Forty percent of the world’s fuel oil - the residual oil left over after extracting lighter products from crude oil - is used as bunker oil to power Ocean going vessels. Much of that fuel has relatively high sulfur content. Given that refineries sell fuel oil for less than the cost of crude – the bunkers market has traditionally been a convenient dumping ground for unwanted high sulfur residual fuel oil. New international regulations that came into force in 2012 drastically reduce the permitted sulfur content in bunkers after 2015 in the world’s populated coastal regions. Today we describe the impact the new rules could have on refiners.

The US Gulf Coast is perceived by midstream operators to offer a growing opportunity for the export of fuel oil left over from refinery processing. The US does not produce as much residual fuel oil as European refiners and the largest market is in Asia. But the US Gulf is ideally positioned to import fuel oil from Europe or Latin America to blend with domestic production and export to Asia. New terminal infrastructure is coming online to meet growing demand for storage and blending facilities. Today we look at the Gulf Coast’s largest fuel oil terminal.

The market for residual fuel oil is traditionally not attractive for refiners because prices are lower than for crude feedstocks. However, some of the world’s biggest oil traders profit from arbitrage between different fuel oil grades and locations. The Gulf Coast market is expected to expand as refiners add imported fuel oil to their feedstocks to balance lighter crudes coming their way from shale production.  In October a brand new fuel oil terminal will open on the Houston Ship Channel to help serve the growing needs of fuel oil traders. Today, appropriately “International Talk-Like-a-Pirate-Day” we begin a new series covering the Gulf Coast fuel oil market.