RFO consumption expected to decline significantly by 2020

2nd September 2016

  

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US energy research agency Energy Information Administration (EIA) in May released a report that commented that residual fuel oil (RFO) consumption is expected to decline significantly within the next four years.

RFO is one of several residuals that remain after lighter materials, including petroleum and distillate, are distilled from the crude oil refining process.

The EIA releases a yearly International Energy Outlook (IEO) report that provides a reference case projection, based on a business-as-usual trend estimate, given the known technological and demographic trends. This means that the IEO 2016 case assumes that current laws and regulations are maintained throughout the projections.

The agency comments that RFO is used in many sectors globally, including the marine transport, power generation, and industrial sectors. Additionally, in some parts of the world, RFO is used as a relatively low-cost fuel for space heating.

RFO, however, contains large amounts of contaminants, including sulphur, nitrogen and heavy metals, the EIA explains.

The EIA notes that, of late, “health and environmental concerns related to the high sulphur content of RFO have led to new policies and regulations that have significantly lowered expectations for its use in the future”.

As demand for RFO declines, refining upgrades will be needed to convert residual material to lighter, cleaner products. The IEO 2016 expects that reductions in demand for RFO are likely to result from decreases in its use in power generation and for space heating.

The EIA explains that, in the power sector, the cost of pollution controls, maintenance, and RFO heating usually offsets the comparatively lower cost of RFO on its own. As a result, power sector demand for RFO in industrialised countries is expected to decrease. However, the EIA says that RFO may continue to serve as a transitional fuel in the power sectors of emerging and developing countries that are more sensitive to price than environmental and health implications.

Additionally, significant reductions in RFO demand could come from the implementation of rules set by Annex VI of the International Maritime Organization through the International Convention for the Prevention of Pollution from Ships (Marpol).

The EIA notes that, since 2012, Marpol regulations have required controls on emissions of sulphur and nitrogen oxides globally. The regulations are based on emissions associated with fuel combustion rather than on the fuels themselves. As a result, some marine transport operators are considering the use of liquefied natural gas (LNG) as an alternative fuel for ships operating along routes where LNG is available.

As few refineries are capable of removing sulphur from RFO. The EIA notes that Marpol compliance is likely to be achieved by two approaches: using fuels with lower sulphur content (such as marine gas oil and intermediate fuel oil) and using scrubbers or other technologies to remove sulphur from the exhaust of combustion processes.

“The levels stipulated by the Marpol regulations can be met by using RFO with sulphur levels of no more than 3.5%. The rules also set more stringent requirements – consistent with RFO sulphur levels of no more than 0.1% – in designated Emissions Control Areas (ECAs), which include the North Sea, the Baltic Sea, and the coastal areas of North America and the Caribbean Sea.”

The EIA comments that a study – currently under way – intends to evaluate the probable availability and pricing of various compliance options for the use of RFO in non-ECA areas. The study will also provide a decision on when the implementation of RFO reduction standards establishing sulphur emissions levels of no more than 0.5% will come into effect – either in 2020 or 2025.


Liquid Fuel Consumption
In its IEO 2016 report, the EIA states that liquid fuel consumption will increase from 90-million barrels a day in 2012 to 100-million barrels a day in 2020 and to 121-million barrels a day in 2040. It explains that much of the growth in global fuels consumption is projected for the emerging and developing economies of Asia, the Middle East, and Africa, where strong economic growth and rising populations increase the demand for these fuels.

The report notes that in the transport sector, liquid fuels continue to provide most of the energy consumed. Further, while the agency anticipates continued advances in nonliquids-based transport technologies, it believes that these advances will not be enough to offset the rising demand for transportation services and, therefore, the rising demand for liquid fuels such as petroleum.

Liquid fuels consumed for transportation will increase by an average of 1.1% a year from 2012 to 2040, with the transport sector accounting for 62% of the total increase in fuel consumption.

The report envisions a production increase of about 30.5-million barrels a day from 2012 to 2040, to satisfy the increase in demand. This includes the production of crude oil, lease condensate and other liquid fuels.

Global liquid fuels production exceeded consumption beginning in 2014 and reached 95-million barrels a day in 2015. The EIA notes that oil markets are expected to remain oversupplied in the short term, keeping EIA’s forecast for yearly average prices below $50/bl until at least 2017.

In the report, Africa’s consumption of petroleum and other liquid fuels is projected to grow by 3.3-million barrels a day from 2012 to 2040, as the continent’s gross domestic product increases by 4.7% a year from 2012 to 2040.

The EIA comments that with the expected favourable investment environment and relative political stability in the long-term, growing consumer demand is projected to increase demand for consumer goods, service and liquid fuels, particularly for personal transportation and freight services.

Edited by Zandile Mavuso
Creamer Media Senior Deputy Editor: Features

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