- Reliance Industries has reported a plunge in the June quarter refining margins, guided towards a stable scenario, implying the dependence on new bunker oil norms.
- IMO to enforce a new 0.5 percent global sulphur cap on fuel content from January 2020, lowering from the present 3.5 percent cap.
- Global fuel sulphur cap is part of the IMO’s response to heightening environmental concerns contributed by harmful emissions from ships and the new bunker oil rules have fuel sellers and shipping companies worried.
According to an article in DNA India, Reliance Industries has reported a plunge in the June quarter refining margins, guided towards a stable scenario. This implies that improvement depends on the implementation of the new bunker oil norms.
Reliance Industries
The largest private sector oil refiner runs the world’s largest refinery with a 60 million tonne annual capacity. It could earn only USD 8.1 on turning every barrel of crude into fuel, steeply down from a gross refining margin (GRM) of USD 10.5 a barrel in the year-ago period.
The margin was also lower than USD 8.2 a barrel it had earned in the March quarter. This capped its standalone profit growth of a low 2.4 percent at Rs 9,036 crore.
The International Maritime Organization will enforce a new 0.5 percent global sulphur cap on fuel content from January 1, 2020, lowering from the present 3.5 percent cap.
Impact on new bunker oil norms
Group joint chief financial officer V Srikanth commented that GRM outlook is a tough one to make, but the only near-term positive sign is the IMO (International Maritime Organisation)-related impact on new bunker oil norms, which would weaken fuel oil and boost the mid-distillates.
He further added that the benefit from a refining point of view really comes from the IMO regulation (on new bunker oil norms) and its implementation. Given this, “we are expecting in and around stable GRM going forward…such a range looks positive,” Srikanth said.
On the ongoing geopolitical tension in the Middle East, Srikanth said it’s business as usual and their operations have not been impacted.
“All shipments are going through, but the lingering tension has led to uncertainties, but that is something businesses have to factor in as they operate,” he said.
IMO Regulations
The global fuel sulphur cap is part of the IMO’s response to heightening environmental concerns contributed by harmful emissions from ships.
The new bunker oil rules have created a state of unrest among the OPEC oil producers, bunker fuel sellers and shipping companies.
The rules, drawn up by the IMO, seeks to ban ships using fuel with a sulfur content higher than 0.5 percent, steeply down from 3.5 percent now, unless a vessel has equipment to clean up its sulfur emissions.
Any vessels failing to comply will face penalties, can find their insurance stopped and can even be barred from sailing by declaring them to be unseaworthy.
Demand for marine gasoil
The global shipping fleet now consumes about 4 million bpd of high sulfur fuel, but about 3 million of that demand will disappear from January 2020, according to industry forecast and it is expected that most if this demand will shift to marine gasoil, a lower sulfur distillate fuel.
According to Morgan Stanley, this will generate at least 1.5 million bpd in extra demand for distillates over the next three years, pushing up total distillate demand to 3.2 million bpd, which in turn, can drive up prices.
Already Gasoil now trades at a premium of about USD250 a ton to fuel oil, but this is seen ballooning to USD380 a ton by early 2020.
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Source: DNA India
