Supplementary information concerning IMO 2020 regulations

abarrelfullabarrelfull wrote on 15 Jan 2019 14:35

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Due to an increase in interest regarding the exposure of Corral Petroleum Holdings AB (publ) and Preem AB to the new shipping regulation announced by the International Maritime Organization (IMO), this additional information is being posted for all investors. Please note that the matters discussed below include forward-looking statements about our current expectations with respect to the future. Because forward-looking statements are subject to change based on future events and circumstances, we cannot guarantee that those expectations will prove correct.

We expect that when the new IMO sulphur specification for bunker fuel oil comes into effect January 1, 2020, the price for heavy fuel oil (HFO) will drop due to reduced demand, and the price for gasoil will increase due to increased demand. What the net effect for the refining industry will be remains to be seen, but it is anticipated that especially “landlocked” and smaller/simpler refineries with relatively high fuel oil production will struggle the most.

Preem AB runs its refineries in Lysekil and Gothenburg as one 340,000 barrels per-day refining system where we have high upgrading (72% gasoline/diesel versus Europe average of 59%), and ample desulphurization capacity. We believe Preem’s refining system is thus in a significantly better position than the average European refiner. Lysekil typically runs a high-sulphur (HS) crudeslate, while Gothenburg runs low-sulphur (LS). This pattern will most likely continue in general following the implementation of the IMO regulations, but with operations continuously optimized to reflect HS/LS crude differentials and the HFO versus diesel cracks spread.

We plan for the new Vacuum Distillation Unit in Lysekil to start up in Q1 2019. This unit will produce Vacuum Gasoil from HFO, and with this unit in operation we will have less than 20% HFO left in the product slate from the two Preem refineries.

In addition we also plan to start up the new Hydrogen Production Unit in Gothenburg in Q1 2019, which will significantly increase Preem refineries’ desulphurization capacity as well as further increasing the economically attractive renewable transportation fuels production capacity in the Gothenburg refinery.

We believe that the Preem refining system is very efficient, and focused on flexibility and continuous optimization. We feel that we are thus well prepared to handle the new challenges — and opportunities — that will occur on the crude and products side with the implementation of the new IMO regulations.

In parallel with the two projects mentioned above we are also cooperating with US firm Beowulf Energy in examining the possibilities for a potential future residue hydrocracker plant in Lysekil to better meet the long-term demand for transportation fuels. The purpose of this cooperation is to develop a residue hydrocracker design basis for future investment decisions, and in parallel commence with the process of obtaining the necessary permits. A previous press release regarding this initiative is reproduced below for your information.

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