IMO 2020: Will you sink or swim?

Energy

SHARE THIS STORY

In just eight months, the International Marine Organisation (IMO) 2020 regulation will cut the maximum sulphur content in marine fuels worldwide, in an attempt to clean up the shipping industry. The new regulation will impact all levels of the market across the globe, from oil drilling operations in Nigeria to refineries in China.

The IMO has agreed to limit the sulphur content in all marine fuels to 0.5%, a decrease of 3.0% from the current level. This is a major issue for refiners, who historically have used the shipping industry as means of getting rid of high-sulphur material without the cost of further processing.

Some larger operations may have the capacity to remove this excess sulphur, whereas smaller scale refiners will be forced to use a lower-sulphur feedstock, which unfortunately is already being used for fuel in other sectors.

What options do shippers have for alternative fuels?

The need for lower-sulphur refinery input will filter into the oil market, increasing demand for sweeter crude oil grades containing less sulphur. This could prop up prices of benchmark grades such as Brent and WTI. Regions, such as the Americas, which produce sweeter crude are in a better position to produce low-sulphur fuels. This will push them into greater positions of strategic strength.

Another option for shippers is the use of gasoil as fuel. The conversion process is relatively cheap and doesn’t require a long period of time in the shipyard. Unfortunately, there is a catch: gasoil can be blended into diesel, making it a far more valuable product than alternative fuels. Despite this, ICIS sees this as being one of the most viable options for shippers, accounting for over half the bunker fuel mix in 2020.

Alternatively, at a high upfront cost shippers could install exhaust scrubbing facilities which remove sulphur from engine fumes, making vessels compliant with the new regulation. This will allow the continued use of cheap high-sulphur fuel oil (HSFO). Ship owners would lose time at dock, with Wartsila saying fitting would take 1-3 weeks. Some countries, as shown in the infographic, have already proposed restrictions to this technology as the treated wash water is then discharged back into the ocean.

The idea of using liquefied natural gas (LNG) is also gaining traction. However, similar to scrubber installation, shipowners will require a large amount of capital expenditure. This is why ICIS expects most shippers to transition to gasoil in the short term before seeking alternative technologies as the industry adapts to IMO 2020.

The regulation could also squeeze the oil products market. Changes in price for fuels or refinery output could have a knock-on effect on base oils prices, margins, and financial viability. In future, base oils could face more competition from low-sulphur fuels such as diesel for the use of vacuum gasoil (VGO) feedstock.

Our latest infographic highlights the main areas of the value chain affected by the IMO 2020 regulation. Download your free copy now.

Article by Richard Price

PREVIOUS POST

Spot LNG rebounds from $4/MMBtu lows

25/04/2019

Global spot LNG prices fell to their lowest levels of the year in late-March and...

Learn more
NEXT POST

Spot LNG prices steady at low levels

23/05/2019

Global spot LNG prices held steady over the four weeks from mid-April to mid-May...

Learn more
More posts
Spot LNG stronger on winter, outages
21/08/2020

Spot LNG prices for front-month cargoes started to climb from their previous rock-bottom levels duri...

Read
We need to talk about Joe!
20/08/2020

So, once the Democrats conclude this week’s first ever virtual convention held by a US political p...

Read
Spot LNG weak despite more cuts
20/07/2020

Spot LNG prices remain at rock-bottom levels despite major cuts to global production, especially fro...

Read
Market volatility is here to stay
01/07/2020

Today marks the first day of the second half of 2020, and as I’m sure you will all agree, a lot ha...

Read
Spot LNG still weak, despite more cuts
16/06/2020

Spot LNG prices remained very weak in the period from mid-May to mid-June. Growing numbers of US car...

Read
Reports of clean energy’s demise are greatly exaggerated
28/05/2020

As the Covid-19 pandemic enters its sixth month, we are starting to get more data on the impacts tha...

Read
Spot LNG gains on US shutdowns
19/05/2020

Spot LNG prices remain at historically low levels, the result of ongoing structural oversupply in th...

Read
Spot LNG plunges to record lows
16/04/2020

Spot LNG prices have continued to plummet in recent weeks as the demand destruction brought by the c...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more