Under the Blade - How New Rules on Bunker Fuel Sulfur Content Will Impact Refiners

Much tougher rules governing emissions from ships plying international waters soon will force wrenching change on the energy industry. Demand for high-sulfur fuel oil is expected to plummet; ditto for HSFO prices. Demand for low-sulfur distillates from the shipping industry will rise sharply, putting upward pressure on prices for marine gas oil, marine diesel oil and ultra-low-sulfur diesel. These demand and pricing shifts, in turn, will have a number of significant effects on refiners. Today we continue our series on the far-reaching effects of the International Maritime Organization’s (IMO) mandate to slash emissions from tens of thousands of ships starting in January 2020.

This blog series is based on elements of a just-published report by our friends at Turner Mason & Co. that examines a number of crude oil- and refined products-related topics, including the impact of the IMO’s new sulfur rule (planned effective date: January 1, 2020) on high-sulfur fuel oil (HSFO) and low-sulfur marine distillate demand and prices, on future demand for various grades of crude (heavy vs. light, sour vs. sweet etc.), and on the refining sector more generally.

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As we covered in Part 1, the global shipping industry is a leading consumer of petroleum products; tankers, dry bulkers and container ships now consume just over half of the world’s residual-based heavy fuel oil––more specifically, ~4 million barrels a day (MMb/d) of HSFO, which has a sulfur content of up to 3.5%. In How Am I Supposed to Live Without You, we discussed the IMO’s October 2016 decision to reduce from 3.5% to 0.5% the allowable sulfur content in bunker fuels used by most of the world’s 50,000-plus merchant ships. As we said then, an even tougher sulfur-content standard (a 0.1% cap on sulfur) already is in place for vessels that operate within the IMO’s “Sulphur Emission Control Areas” (SECAs, or sometimes ECAs), which include Europe’s Baltic and North seas and areas within 200 nautical miles of the U.S. and Canadian coasts.

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