Regional refiners of Europe are being forced to blend aviation fuel into diesel because of little demand for aviation fuel and due to forecasts that any recovery in European jet fuel demand to levels prior to the Covid-19 pandemic is years away, according to consultancy FGE Energy.
This has kept a lid on the crude runs of the refiners, FGE Energy said.
FGE forecasts demand for jet/kerosene in Europe by the end of 2022 will reach 75 per cent of the 2018-2019 levels only which means that European refiners will have to continue to blend large volumes of jet fuel into diesel so that the surplus can be utilised.
“Such blending tends to limit overall refinery crude throughput because maximum distillate hydrotreating capacity is reached at lower crude throughputs,” FGE says.
The chemical process of hydrotreating is used in refining petroleum products for removing sulphur.
“At this point, incremental crude runs would produce only naphtha, high sulphur gasoil and fuel oil – not a recipe for positive margins,” FGE added.
Demand for jet fuel in Europe will not recover fully to pre pandemic levels until 2030 but will be very close to that level from 2024-25, forecast the consultancy firm.
Refiners that could not run profitably any longer resorted to capacity rationalisation after a collapse in demand for fuel due to the closing down of major European economies because of Covid-19 induced lockdowns imposed to slow down the spread of the pandemic.
Because of the closures announced for 2020 and 2021, there will be a reduction in European refining capacity by 700,000 barrels per day (bpd) while there would be a 200,000 bpd drop in hydrotreating capacity, according to the estimates of FGE.
FGE says that this translates to the European refiners not being able to return to their pre-Covid-19 annual crude run levels of 12.5 million bpd while forecasting that runs to be an average of 11.1 million bpd for the current year and 11.7 million bpd next year.
“The more jet that can be pulled out of the diesel pool (thus freeing-up diesel hydrotreating capacity) the more scope there is for refiners to increase throughput,” FGE said.
According to traders, even though economies in and around Europe have opened up with easing of Covid-19 movement restrictions there has been pressure on European diesel refining margins largely because of blending of jet fuel.
According to reports, barge diesel margins in northwest Europe currently are trading at about $5 a barrel while it was over $23 a barrel in March 2020.
(Adapted from Reuters.com)