Total explains rationale for ULSD investment plans

Diesel Fuel News, June 9, 2003 by Jack Peckham

Brussels -- Noting a world-wide trend indicating a decline in heavy fuels demand versus a strong growth curve for diesel, Total-FinaElf is developing a strategy to optimize its refining investment for the future.

Speaking to the Hart World Fuels Conference here, Total refining official Jean-Jacques Mosconi showed how refiners face big challenges for meeting ultra-low sulfur diesel (ULSD) standards and diesel demand growth, while finding ways to rationalize markets for heavy fuel oils.

World diesel and heating oil demand continues to grow at over 2.2% per year, while combined heavy fuel oil/marine bunkers net demand is declining by 0.8%/year, Mosconi showed.

What's more, Europe is forcing a 1% sulfur limit on heavy fuel (BTS) as a substitute for high-sulfur heavy fuel. Even further, European Parliament is now moving to mandate a 1.5% sulfur limit on ship bunker fuel (see related story, p9) by as early as 2005, and is pushing a further cut to 0.5% sulfur in bunkers between end-2008 and end-2012.

Thanks to a combination of several factors, "a surplus of fuel oil will potentially worsen in both the Atlantic Basin and Former Soviet Union (FSU)" by 2010, Mosconi showed here. However, Latin America and Asia/Pacific will continue to show supply deficits for these fuel oils by 2010, he said.

Meantime, because of an overwhelming dieselization trend of European vehicle fleets, demand for middle distillate seems likely to far outstrip European production. Europe's diesel-plus-heating-oil deficit seems likely to reach about 40 million tons/year by 2010, partly due to "limited deep conversion projects" that are stifled by "still lucrative valorization" of heavy fuels in remaining markets for such heavy fuels.

Because of this fairly strong price factor for heavy fuel oil, Total gave up on a proposed heavy-fuel gasification scheme and is instead spending $500 million on a 2.4 million tons/year distillate hydrocracker and steam-methane reformer at its Normandy refinery, due to start-up in summer, 2006. This project nevertheless will reduce heavy fuel oil output and increase the supply of 10-ppm sulfur diesel and jet fuel at this plant, he said.

Other complicating factors affecting strategic planning for managing diesel deficits and fuel oil surpluses are "potential evolution of the U.S. market towards diesel, impacts of fuels taxation [changes] in Europe and the quality of imports from FSU," he said.

Against this backdrop of supply/demand uncertainty is the high volatility of refining margins, which while averaging about $15/ton over the past decade have fallen in some years to under $10/ton, he showed.

Meantime, in the last four years world refiner cracking capacity has increased by nearly i million barrels/day (but mainly outside the U.S.), while coking capacity has jumped by 700,000 b/d, mostly in the U.S.

While refiners eventually will adjust to these production and demand imbalances, free-market prices will provide the necessary signal to correct physical imbalances in the short-term, he said. "In the longer term, innovative technologies like GTL [gas to liquids] could provide extra solutions" to the strong demand growth for ultra-clean diesel, he added.