It’s been more than three years since the International Maritime Organization (IMO) fully committed to the January 1, 2020, implementation of IMO 2020, a rule that slashes the allowable sulfur content in bunker fuel used in the open seas around most of the world from 3.5% to only 0.5%. There’s been a lot of angst in the interim, most of it regarding the changes in crude slates, refinery operations and fuel blending needed to meet a flip-of-a-switch spike in global demand for low-sulfur bunker. Also, shippers worried that prices for rule-compliant fuel would go through the roof. Well, it turns out that the transition period in the months leading up to the IMO 2020 era has been largely drama-free. Supplies of very low-sulfur fuel oil (VLSFO) and marine gasoil (MGO) — the bunker most ships will now use — have been building in most places, prices are up but moderating, and while there may be a few hiccups as ships shift to new, cleaner fuels, life will go on. Heck, life will likely be even better for most complex U.S. refineries, which can churn out large volumes of low-sulfur refined products and which will have access to price-discounted high-sulfur “resid” as an intermediate feedstock. Today, we take a big-picture look at the global bunker market as IMO 2020’s implementation day approaches.
As we’ve discussed in a number of blogs, the IMO, a specialized agency of the United Nations, in recent years has been implementing ever-tightening rules to reduce allowable sulfur-oxide emissions from the engines that power the 50,000-plus tankers, dry bulkers, container ships and other commercial vessels plying international waters. In Against the Wind, we explained that in January 2012, the global cap on sulfur content in bunker (marine fuel) was reduced to 3.5% from the old 4.5% (orange bar with dashed green oval in Figure 1) and that on January 1, 2020 — next Wednesday — it is set to be reduced to a much stiffer 0.5% (orange bar with dashed red oval). There are even tougher standards for sulfur already in place in the IMO’s Emission Control Areas (ECAs), which include Europe’s Baltic and North seas and areas within 200 nautical miles of the U.S. and Canadian coasts. In July 2010, the ECA sulfur limit in marine fuel was reduced to 1%, from the old 1.5% (teal bar with dashed purple oval), and in January 2015, the limit was ratcheted down again to a very stringent 0.1% (teal bar with dashed yellow circle) — a standard that will remain in force within the ECAs when the 0.5% sulfur cap for the rest of the world becomes effective on New Year’s Day.
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