New sulphur law shuts plants
From the middle of next year, heating oil sold in New York state will be restricted to a sulphur content of 15 parts per million (ppm), down from today’s 2000 ppm specification.
This means that in New York, heating oil, a formerly easy product to make, will become very similar to ultra-low sulphur diesel, a more costly product.
Other jurisdictions are set to follow later, but New York state’s early move may prove decisive for the whole market.
Although heating oil is a declining market as consumers switch to natural gas, it has played a key role for cash-strapped refiners as a dumping ground for higher sulphur distillate streams that can no longer find a place in the diesel pool.
Nearly 40 per cent of East Coast refiners’ distillate fuel output last year was high sulphur. Without investments in desulphurisation capacity to upgrade these streams, refiners are facing a big hit to profitability.
So as the heating oil specifications tighten, tens of millions of dollars in investment will be needed just to stay in business. Of course today the three refineries up for sale – two Sunoco plants in the Philadelphia area and a nearby ConocoPhillips facility – are already losing money, so the new investment would merely allow them to continue losing money at roughly the same pace as today.
Currently Sunoco’s two refineries do not have any diesel desulphurisation capacity, according to the US government.
Some other units may be suitable for conversion to diesel desulphurisation.
Conoco’s refinery has some diesel desulphurisation, but less proportionally than other sweet crude oil refineries, suggesting that it too would need investment.