Sulfur Regulation Requires Sea Change in Oil Industry

By
Mfame Team
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  • Global refineries are lacking in desulfurization capacity to cater to huge demand.
  • High sulfur fuels are likely to encounter low prices in the wake lower demands.
  • LNG bunkering facilities are rarely found.
  • Over-capacity and depressed freight rates are causing low investments in LNG vessels.

As the 2020 deadline is getting closer, the fuel situation in the shipping industry looks quite abysmal. Apparently, the global refineries are on the edge regarding the low sulfur fuel prospect as they don’t have enough desulfurization capacity to meet the upcoming demand created by the International Maritime Organization Sulfur 2020 regulations, writes Faisal Mrza, the Oil and Energy Correspondent of SeekingAlpha.

What are the reasons for concern?

  1. IMO 2020 is part of the strategy to reduce greenhouse gas emissions under UN Paris Agreement on climate change. The impact on global refining and shipping industry wasn’t considered.
  2. Lower demand will drive down prices of high-sulfur fuel oil in the global market. There will be widening product spreads for different types of crude.
  3. The use of LNG as a marine fuel has not yet found favor as LNG bunkering facilities are still rare.
  4. Excess global shipping capacity and depressed freight rates have discouraged investment in new LNG-fueled vessels.

Difficulties in Implementation

The significant reduction in the sulfur content level (from 3.5% to 0.5%) of commercial marine bunker fuel have got the refiners off guard as they don’t have enough desulfurization capacities to keep up with demand. In the past, global shipping utilized as fuel what remained after the refining of oil into products such as gasoline. IMO 2020 will bring a massive reduction in such use.

The Ultimate Question

The ultimate question is what will happen once IMO 2020 comes into force. There is total agreement that desulfurization capacity is lacking. So, the question lingers over the sulphur cap and it requires a major change to manage this tectonic shift to low-sulfur commercial marine fuel oil.

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Source: Seeking Alpha