Page 5 - LatAmOil Week 24

LatAmOil COMMENTARY LatAmOil

Indeed, Argus Media reported on June 16 that of increasing the use of fuel oil in the power-gen-
refineries had been ramping up capacity utilisa- eration sector.
tion and would continue to do so. They have an According to Argus Media, Mexico’s federal
incentive to process more crude oil, given that regulatory commission, known as Conamer,
restrictions on transportation are being phased published a planning document earlier this
out in Mexico City, it said. week that calls for CFE, the national electricity
It also quoted a fuel trader based in the cap- provider, to “maximise the use of fuel oil and
ital city as saying: “We are seeing an increase in reduce its sulphur content for use in power gen-
demand [for petroleum products] as population eration.” Doing so would involve postponing
mobility rises.” plans to decommission fuel oil-burning thermal
power plants (TPPs) and outfitting those facili-
More gasoline and more HSFO ties with scrubbers that will “reduce emissions “
But increased gasoline production will not be and sulphur content at prices that are reasonable Mexico may
the only consequence of rising refinery utilisa- for Pemex and CFE,” the document said.
tion rates. postpone plans
Refineries do not only produce gasoline. Higher demand (eventually)
Instead, they break crude oil up into multiple Making this shift would not lead to an imme- to decommission
types of fuels, some of which (such as gasoline diate rise in domestic HSFO demand, however.
and diesel) are lighter and more valuable and From a logistical and legal perspective, CFE will fuel oil-burning
some of which (such as residual fuel oil) are need time to prepare for expanding its use of power plants
heavier and less valuable. The share of each residual fuel oil, explained Mario Morales, CFE’s
product varies according to the characteristics liaison for legacy contracts. and outfit those
of the feedstock used, and in Mexico, Pemex’s “If we did burn more fuel oil, we would have
refineries process crude that yields about 30% to comply with regulations,” Morales was quoted facilities with
residual fuel oil. As a result, plants that boost as saying by Argus Media earlier this week. “Fuel
throughput in order to raise output of a light oil requires filters [and] certain infrastructure to scrubbers
product will inevitably end up with larger quan- comply with regulations, and [Mexico’s state
tities of heavy products as well. environmental agencies] Semarnat and Profepa
This has certainly been the case in Mexico. would be the first to insist that CFE does not pro-
Official data show that Pemex has been pro- duce [more] emissions.”
ducing more high-sulphur fuel oil (HSFO) this Morales stated, though, that CFE was not
year. In the week ending on May 1, its refineries averse to using more HSFO. Indeed, he indicated
turned out 201,000 bpd of HSFO, marking a that he saw such a switch as a logical response to
35% increase on the figure reported for the same oversupply.
date in 2019. “If, for some reason, we need to burn more
Unfortunately, though, Pemex is having dif- fuel oil – we do not have a reason at the moment,
ficulty disposing of all this fuel oil. In April, it but if we did – I would ask myself, ‘Why does
sold around 63,000 bpd of HSFO to domestic Germany burn 38% coal?’ Because that is what
buyers and exported another 84,000 bpd. This they have,” he remarked. ™
left it with 54,000 bpd of unsold production that
had to be put into storage.

Options for oversupply
The prospects for future sale of these volumes
are bleak, as Pemex’s traditional customer base
is shrinking.
In Panama and other shipping hubs, marine
fuel traders are less interested in HSFO, which
contains 4% sulphur, owing to the introduction
by the International Maritime Organisation
(IMO) of new standards limiting sulphur con-
tent to 0.5%. Meanwhile, US refiners seeking
HSFO as a substitute for heavy sour feedstock
have also been turning to local and Russian sup-
pliers lately rather than buying from Pemex.
This might not be a problem for another
company – specifically, for a company that
owned more complex refineries with second-
ary-processing units capable of breaking HSFO
down into fuels that were lighter and lower
in sulphur. However, only three of Pemex’s
plants (Cadereyta, Madero and Minatitlan) are
equipped with coking units suitable for the job.
As a result, the company has yet to resolve the
question of what to do with its excess HSFO pro-
duction. But Mexico’s government is trying to
find an answer – and it has hit on the possibility Only three of Pemex’s six refineries can further process HSFO (Image: Pemex)

Week 24 18•June•2020 www. NEWSBASE .com P5