Repsol has
already sold around
150,000 metric tons
of low-sulfur
fuel at Spanish
ports and nearly
1 million
in Singapore

At the beginning of 2020, new regulation from the International Maritime Organization has entered into force, aimed at reducing emissions in maritime transportation. In order to satisfy the demand for new fuels, Repsol has one of the most competitive refining systems in Europe and one of the most active sales teams on the market for these products. The company produces this new type of maritime fuel at its refineries in Spain and Peru, and it sells low-sulfur fuel oil at the ports of Algeciras, Barcelona, Valencia, A Coruña, Lima, and Singapore, with the port of Ferrol soon to be added to the list.

As of January 1, 2020, the new specification, known as IMO 2020 (after the acronym of the International Maritime Organization, which regulates maritime traffic worldwide), will restrict the maximum sulfur content of maritime fuels used in international waters to 0.5%, a significant reduction from its current 3.5%.

"Repsol supports all measures that help make transportation more sustainable", states José Correa, Director of Crude Oils and Heavy Products at Repsol. "And the strategy pursued in accordance with this regulation, placing our bets on a line of maritime fuels that produce less sulfur oxide (SOx) emissions, is framed by our recently announced commitment to become a net zero emissions company by 2050."

Repsol's competitive advantage

IMO 2020 will bring substantial changes to the global bunker fuel market, the maritime fuel supply business, and the crude and gasoil markets. The International Energy Agency predicts that Very Low Sulfur Fuel Oil (VLSFO) will replace at least half the volume of High Sulfur Fuel Oil (HSFO) that was consumed as bunker fuel in 2019.

A small part of current HSFO demand will be maintained, as shipping companies can opt to install purifying systems in their ships that eliminate SOx emissions (known as scrubbers) in order to continue using this type of fuel. This, however, proves a costly solution and the availability of these devices is limited. The demand for maritime gasoil (MGO), a distillate that fulfills the requirements of the new regulation and is produced and supplied by Repsol, will also increase as an alternative to VLSFO.

The drastic fall in HSFO demand has severely lowered its market price, as well as that of the crudes used to produce this product (heavy and medium crudes with a high sulfur content). In addition, the increase in marine gasoil demand will lead to a rise in the market price of gasoils.

In this new scenario, the most competitive refineries —especially those with a high conversion capacity that are capable of transforming the heaviest fractions of crude into products with greater added value and of producing large quantities of distillates (gasoils and kerosene)— may capture an extra margin, as they will make use of heavy crudes at a lower price and will benefit from higher gasoil prices. The Spanish company, that over the last two years has invested more tan 4 billion euros in the modernization of just two of its refineries (Cartagena and Bilbao), "is one of the energy companies in Europe best prepared to benefit from this situation and maximize margins," Juan Carlos Ramírez, Director of Scheduling, Logistics, and Sales to Refining Operators, declares.

A well-prepared refining system

Repsol's refineries in Spain are in the top 25% in Europe in terms of conversion capacity. Four of its five refineries in Spain are equipped with cokers, industrial plants that enable the facilities to make use of the heavy part of the crude to transform HSFO components into fuels with greater added value (chiefly distillates and gasolines), and, thus, reach zero production of HSFO. Repsol possesses 25% of Europe's installed capacity of this type of units, even though it only holds 6% of the total crude distillation capacity. The company's Spain-based refining system also produces large quantities of medium distillates (roughly 55% of its products), making its product portfolio truly robust.

Repsol’s advantage
is based on the
capacity of its
refineries to process
heavy crudes

Repsol's sixth refinery, located in La Pampilla, Peru, has required additional efforts in order to adapt to this new context, owing to its inferior conversion capacity and greater dependence on high-sulfur fuel oil production. The work of the team of experts at the refinery and of all of the businesses involved has allowed the refinery in Peru to begin producing VLSFO at the end of 2019.

"Repsol's advantage is also based on the capacity of our refineries to process heavy crudes (a high-sulfur raw material that will become cheaper) as well as on the demand for distillates which will go up in price as they will be needed to produce fuel with a 0.5% sulfur content or will be used directly as maritime fuel. The production and sale of VLSFO is just the tip of the iceberg in the economic optimization of our system," Juan Carlos Ramírez adds.

Bunker fuel in Europe, Asia, and the Americas

Repsol has been working since 2018 to take advantage of this opportunity (the production and sale of this new fuel). When the new specifications for maritime fuels were established, the company set in motion a multidisciplinary work team made up of experts from the Refining and Trading departments and the Repsol Technology Lab.

In December of that year, the company produced its first batch of VLSFO. Over the course of 2019, when the sulfur content restrictions were still not in effect, almost 200,000 metric tons of this fuel were produced at the refineries in Tarragona, A Coruña, and Lima. "Now, with the implementation of IMO 2020, we hope to produce between 60,000 and 100,000 metric tons a month at our refineries in Spain and Peru, a volume that will vary depending on market conditions" and that the Refining business will make available to the Trading unit for sale.

To date, Repsol has already sold around 150,000 metric tons of VLSFO in Spain, where it supplies bunker fuel at the ports of Algeciras, Barcelona, and Valencia, typically by barges. It is also working to supply VLSFO through a pipeline in Ferrol and A Coruña and to develop the logistics to be able to supply the product using tanker trucks and, thereby, broaden distribution.

Outside Europe, the company offers a bunkering service at the ports of Lima and Singapore. At the Asian port, a key global maritime transportation hub, Repsol was highly active in 2019, selling nearly 1 million metric tons of VLSFO. Similarly, at the port of Callao in Peru, Repsol offers a product that lives up to the new specifications, produced at the La Pampilla refinery. During 2020, the company will be seeking to broaden these global operations that have also allowed for the development of other lines of business, such as offering other low-sulfur products and components on the market.

In addition to the new fuel (VLSFO), Repsol annually produces at its refineries a volume close to 1.75 million meters cubed of gasoil with 0.1% sulfur that can be used as maritime fuel.

Broad range of efficient fuels

VLSFO is more difficult to produce than conventional fuels as some of its properties, such as stability, may be compromised during the production process. This is one of the concerns of shipping companies looking to adopt this fuel. "Having taken on the challenge of selling this new fuel, Repsol has focused on the quality of its products at each and every one of its facilities, a level of quality that has already been recognized in the market. In addition, we follow a rigorous safety protocol to guarantee the quality of the fuels that the Trading business purchases from third parties," the Director of Crude Oils and Heavy Products at Repsol explains.

The IMO 2020 regulation meets the demand for more sustainable maritime transportation and is key to world trade as, according to data from the UN Environment Program, around 80% of traded goods are currently transported by ship. "Repsol is very well-positioned to supply the main shipping companies with fuels adapted to this new specification, contributing to a more environmentally friendly maritime traffic," José Correa concludes.