The International Maritime Organization announced that shippers and global refiners must reduce sulfur content in marine bunker fuels by January 2020, five years earlier than had been expected.
As a result, the global refining and shipping industries will experience rapid change and significant cost and operational impacts, analytics firm IHS Markit said in a report, “Refining and Shipping Industries Will Scramble to Meet the 2020 IMO Bunker Fuel Rules.”
Neither industry has made the needed investments for compliance, according to IHS, and that means that the 2020 implementation date will result in a scramble.
IHS estimates that about 20,000 ships account for around 80% of heavy fuel-oil bunker fuel use, IHS said.
“While the IMO is taking positive action to address the environmental impacts of air pollution from ships, the rapid change creates significant disruption for both the refining and shipping industries,” said Kurt Barrow, vice president of downstream research and co-author of the paper.
Co-author Sandeep Sayal, senior director of refining and marketing research for IHS, said neither industry has made the necessary investments for compliance, which means that the 2020 implementation date will result in a scramble.
Alternatives to meet the new IMO regulations include low-sulfur bunker fuels and liquefied natural gas, IHS said. But its researchers expect that onboard ship scrubbers — devices that clear harmful pollutants from exhaust gas — will be the primary compliance path for ships, which could continue to burn higher-sulfur fuels.
Krispen Atkinson, principal analyst for IHS Markit Maritime & Trade’s research team, said: “Currently only about 360 ships have installed scrubbers, since there is currently no economic incentive for the ships to add scrubbers. However, based on the price spreads between low-sulfur bunker fuel and high-sulfur fuel oil during the scramble period, it will be economic for many of them to install scrubbers.”
Barrow said that shippers will face “significant compliance costs” by having to upgrade equipment or switch to more expensive fuels. Further, “Refiners will experience significant price impacts as they shift production to deliver more lower-sulfur fuels to the market and, at the same time, find a market for the higher-sulfur fuels they produce.”
Crude-price relationships, specifically between light-sweet and heavy-sour crude, will widen around the compliance timeframe, IHS said.