Hard choices to make for fuel oil routings within Asian refineries
‘- Straight run fuel oil from the CDU typically gets split into VGO and short residue. This VGO then can go into either hydrocrackers, FCCs or base oil production. The short residue (SR) can be routed into cokers, visbreakers, thermal gasoil units, bitumen production or fuel oil blending.
– With Asian refineries losing the key medium sour crude from the AG, this means lower production of VGO and SR. Therefore there are hard choices to make in terms of flow routings to keep each secondary units at the min feasible intakes as well.
– We start with VGO. With middle distillate cracks shooting through the roof, refineries will want to push whatever VGO they have into hydrocrackers, and to a lesser extent FCCs for mogas production.
– Base oil has very specific quality requirements and uses ‘fingerprint’ of types of crudes for production. Asian refineries are very dependent on using AG crudes for this very reason, and the loss of flow from the Strait of Hormuz will likely lead to baseoil production shortages.
– For SR, refineries will try to max out the units that can make more distillates as well, so preferential routing into cokers, visbreakers and thermal gasoil units. Bitumen production will be left by the side as bitumen also requires very specific qualities typically found in the heavier medium sour grades like Kuwait and Basrah Medium.
– 2 out of 3 Singapore refineries have already declared force majeure on bitumen production due to the above.
– There are some Asian FCCs that run on long residue feed called LRCCUs. There will be a need to sustain the LRCCUs at min intake as well. The amount of low sulphur streams is already a lot lower due to massive run cuts everywhere.
– These trends further support our view that Singapore bunker fuel production will be significantly lower and the current Q3 cracks are undervalued.
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