The Changing Dynamics of the US Atlantic Coast

Transcription

1 The Changing Dynamics of the US Atlantic Coast Joshua Starnes, Associate Editor June 11, Platts, McGraw Hill Financial. All rights reserved.

2 Falling Demand in the Northeast

3 Fuel Oil Demand Losing Ground To Gas $40.00 New York: Gas vs. Residual Fuel Oil Prices $35.00 $30.00 $ / M M B T U $25.00 $20.00 $15.00 $10.00 $5.00 $ Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 1-Jun-13 Fuel oil No %S HP Transco Zn6 NY spot gas Source: Platts 3

4 Non-bunker Demand Continues to Fall Source: New York Independent System Operator 4

5 Power Generation Moving to Gas EIA estimates fuel oil makes up less than 1% of New York power generation fuel mix. Approximately 30% of Northeast power generation is dual fuel natural gas/fuel oil Fuel oil will remain in the Northeast as peak fuel, but overall demand levels will not return 5

6 Power Generation Moving to Gas Cheap natural gas values making switch from fuel oil to gas for power generation demand attractive. Florida Power & Light fuel oil demand has dropped from 10 million b/year to less than 1 million b/year. Just finished conversion of Cape Canaveral plant to gas Conversion of Riviera Beach plant in 2014 Conversion of Port Everglades plant in

7 Bunker Market Now Drives Domestic Demand Declining demand in other sectors has made bunker market primary domestic demand driver Annual US bunker demand estimated at approximately 17 million mt/year Port New York Harbor Houston Los Angeles/San Francisco Others Annual Demand (mt/year) 3.5 million million 3 million 5.7 million 7

8 Global Bunker Market Driving Fuel Oil Demand Exports to Europe and Asia for marginal bunker demand the major non-domestic bunker demand driver. Atlantic Coast exports generally flow to the Caribbean or to Rotterdam to feed European market After middle of decade spike, Atlantic Coast exports to Europe are beginning to fall as bunker demand there falls Except for feed to Caribbean, Atlantic Coast unable to export to Asian market 8

9 Fuel Oil Export Demand Rising 6000 East Coast (PADD 1) Exports of Residual Fuel Oil Jan-81 Dec-81 Nov-82 Oct-83 Sep-84 Aug-85 Jul-86 Jun-87 May-88 Apr-89 Mar-90 Feb-91 Jan-92 Dec-92 Nov-93 Oct-94 Sep-95 Aug-96 Jul-97 Jun-98 May-99 Apr-00 Mar-01 Feb-02 Jan-03 Dec-03 Nov-04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May-10 Apr-11 Mar-12 Feb-13 East Coast (PADD 1) Exports of Residual Fuel Oil Source: US Energy Information Administration 9

10 Exports to Rotterdam Falling East Coast (PADD 1) Exports of Residual Fuel Oil by Destination Feb-93 Sep-93 Apr-94 Nov-94 Jun-95 Jan-96 Aug-96 Mar-97 Oct-97 May-98 Dec-98 Jul-99 Feb-00 Sep-00 Apr-01 Nov-01 Jun-02 Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05 Jul-06 Feb-07 Sep-07 Apr-08 Nov-08 Jun-09 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 U.S. Exports to Panama of Residual Fuel Oil U.S. Exports to Netherlands of Residual Fuel Oil Source: US Energy Information Administration 10

11 The Changing Supply Picture

12 Multiple Recent Refinery Closures 30 Number and capacity of petroleum refineries East Coast (PADD 1) Number of Idle Refineries as of January 1 East Coast (PADD 1) Number of Operating Refineries as of January 1 East Coast (PADD 1) Number of Operable Refineries as of January 1 Source: US Energy Information Administration 12

13 Supply falling in reaction to lower demand Multiple refinery closures in Northeast over last three years Approximately 150,000 b/d of production capacity removed from region Gerard Point, Marcus Hook Vacuum distillation capacity down 21% Less production from PES Refinery Fuel oil refinery & blender production at all time low. Bunker quality fuel oil (more than 1% sulfur) production at all time highest share of fuel oil production Imports not closing the gap 13

14 Multiple Recent Refinery Closures 7000 Refinery & Blender Net Production Jan-93 Aug-93 Mar-94 Oct-94 May-95 Dec-95 Jul-96 Feb-97 Sep-97 Apr-98 Nov-98 Jun-99 Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov East Coast (PADD 1) Refinery and Blender Net Production of Residual Fuel Oil 0.31 to 1.00% Sulfur East Coast (PADD 1) Refinery and Blender Net Production of Residual Fuel Oil Less than 0.31% Sulfur East Coast (PADD 1) Refinery and Blender Net Production of Residual Fuel Oil Greater Than 1% Sulfur East Coast (PADD 1) Refinery and Blender Net Production of Residual Fuel Oil Source: US Energy Information Administration 14

15 Falling Imports Are Not Making Up For Lower Production Levels East Coast (PADD 1) Imports of Residual Fuel Oil Jan-81 Nov-81 Sep-82 Jul-83 May-84 Mar-85 Jan-86 Nov-86 Sep-87 Jul-88 May-89 Mar-90 Jan-91 Nov-91 Sep-92 Jul-93 May-94 Mar-95 Jan-96 Nov-96 Sep-97 Jul-98 May-99 Mar-00 Jan-01 Nov-01 Sep-02 Jul-03 May-04 Mar-05 Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11 Sep-12 East Coast (PADD 1) Imports of Residual Fuel Oil Source: US Energy Information Administration 15

16 Fuel Oil Stocks at Lowest Ever Levels PADD 1 Fuel Oil Stocks Jan-93 Aug-93 Mar-94 Oct-94 May-95 Dec-95 Jul-96 Feb-97 Sep-97 Apr-98 Nov-98 Jun-99 Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 East Coast (PADD 1) Ending Stocks of Residual Fuel Oil East Coast (PADD 1) Ending Stocks of Residual Fuel Oil Greater Than 1% Sulfur East Coast (PADD 1) Ending Stocks of Residual Fuel Oil 0.31 to 1.00% Sulfur East Coast (PADD 1) Ending Stocks of Residual Fuel Oil Less than 0.31% Sulfur Source: US Energy Information Administration 16

17 Where Does This Leave Bunker Market?

18 Effect of ECA on Bunker Demand On August 1, 2012, the North American Emissions Control Area came into effect limiting sulfur levels to 1% Sulfur. This has not added demand to the US bunker market as low sulfur demand has come from existing 3.5% Sulfur RMG 380 demand. Atlantic Coast 1% Sulfur RMG 380 demand is estimated at 20% of current bunker market 18

19 Domestic Fuel Oil/Bunker Demand Falling Loss of domestic power generation and weak global shipping market have combined to further dampen bunker demand in the Atlantic Coast. Despite falling supply, demand still falling faster than supply With bunker demand making up such a large percentage of US fuel oil demand, this is visible in the widening spread between fuel oil and Brent crude futures. 19

20 Low Sulfur Crack Spreads 140 1%S Spot vs Brent Crude Futures Brent crude futures ($1/b) NYH 1.0%S fuel oil cargo ($1/b) Source: Platts 20

21 High Sulfur Crack Spreads 140 3%S Spot vs Brent Crude Futures Brent crude futures ($1/b) New York Harbor 3.0%S fuel oil cargo ($/b) Source: Platts 21

22 Weak Demand leads to Tightening in Fuel Oil/Bunker Spread NYH 3%S FO Cargo vs RMG 380 Spot /2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/ /2/2008 1/2/2009 3/2/2009 5/2/2009 7/2/2009 9/2/ /2/2009 1/2/2010 3/2/2010 5/2/2010 7/2/2010 9/2/ /2/2010 1/2/2011 3/2/2011 5/2/2011 7/2/2011 9/2/ /2/2011 1/2/2012 3/2/2012 5/2/2012 7/2/2012 9/2/ /2/2012 1/2/2013 3/2/2013 5/2/ NYH 3.0%S FO Cargo vs RMG 380 Spot Linear (NYH 3.0%S FO Cargo vs RMG 380 Spot) Source: Platts 22

23 Ease of Access to LSFO Existing low sulfur refining capacity in the Northeast and Eastern Canada has kept region well supplied in low sulfur bunker material compared with the rest of the country. Phillips 66 Bayway refinery New Jersey Valero Ultramar refinery Montreal Kildare refinery - Newfoundland Other regions relying on imports for low sulfur bunker material 23

24 New York Maintains Low 1% Sulfur Price Ease of access to supply of 1% Sulfur fuel oil has kept 1% Sulfur RMG 380 values competitive in New York Harbor compared with the rest of the US Average premium to RMG 380 for low sulfur bunker fuel since June 1, 2012: Port Average premium for 1%S RMG 380 New York Harbor $62.58 Houston $92.42 Los Angeles $ Source: Platts 24

25 Looking to the Future Lower Sulfur Limits Coming

26 Next Round of MARPOL Emission Changes On January 1, 2015, sulfur limits within ECA zones will drop from 1% Sulfur to 0.1% Sulfur. Dependent on further postponement, in 2020 sulfur limits in all other waterways will drop from 3.5% Sulfur to 0.5% Sulfur. Ability for fuel oil market to supply sub-1% Sulfur fuel oil in abundance is questionable. Market looking to options: Gasoil LNG Scrubbing technology for fuel oil engines 26

27 Northeast sub-1%s supply situation Northeast has access to sub-1% Sulfur fuel oil production the rest of the US doesn t PES Philadelphia refinery Trainer refinery Imported low sulfur African crude and straight run The move away from fuel oil for power and heat in the Northeast has led to a sharp drop in supply of sub-1% Sulfur fuel oil. Sub-1% Sulfur production approx. 25,000 b/month Winter demand can rise as high as 25,000 b/d 27

28 Is there a room for fuel oil in an ultra low sulfur world? The spread between Atlantic Coast 0.3% Sulfur high pour fuel oil spot and New York ULSD spot barge price has generally been $13-15/b. During high demand periods in the winter that spread has dropped as low as $5/b. Blending fuel oil to 0.1% Sulfur while maintaining viscosity levels is problematic 28

29 Demand Tightens ULSFO/ULSD Spreads 200 New York: 0.3%S HP Fuel Oil vs. ULSD Barge Prices $/b Jan-08 2-Mar-08 2-May-08 2-Jul-08 2-Sep-08 2-Nov-08 2-Jan-09 2-Mar-09 2-May-09 2-Jul-09 2-Sep-09 2-Nov-09 2-Jan-10 2-Mar-10 2-May-10 2-Jul-10 2-Sep-10 2-Nov-10 2-Jan-11 2-Mar-11 2-May-11 2-Jul-11 2-Sep-11 2-Nov-11 2-Jan-12 2-Mar-12 2-May-12 2-Jul-12 2-Sep-12 2-Nov-12 2-Jan-13 2-Mar-13 2-May-13 Fuel oil No %S HP ULSD New York Harbor barge Source: Platts 29

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