Challenges loom for marine fuel change
Houston, 13 March (Argus) — Enforcement may determine demand for low-sulfur maritime fuels required under regulations that take effect in 2020, analysts told the American Fuel and Petrochemical Manufacturers' conference in New Orleans, Louisiana.
Countries with which shipping agencies often register lack the resources or incentives to police compliance with the upcoming International Maritime Organization rules, Stillwater Associates senior associate Ralph Grimmer said. That could leave up to 30pc of the market using fuel that does not meet the 0.5pc sulfur specification, down from today's 3.5pc sulfur requirement, he said.
But destination ports more willing and able to enforce the rules would keep cheating on the mandates lower, BP North America senior originator Jason Breslow said. Noncompliance would only reach 9pc under BP estimates.
"We think the port states do have tremendous power," Breslow said.
Those destination ports will play a large role in determining the economics of how shipping companies respond to the new rules. Energy watchdog group IEA estimates 1.92mn b/d of an estimated 3.2mn b/d bunker fuel market will shift to low-sulfur distillate or marine gasoil to comply with the rules, with the remainder relying on exhaust scrubbers to ensure compliance with the rules using higher-sulfur fuel.
The marine industry lacked the logistics to move these fuel types as well as sufficient storage, said Anil Rajguru, vice president of process safety for Fluor. Only large shipping hubs will have sufficient storage to offer various grades of fuel options, with smaller destinations moving to lower-sulfur fuel able to satisfy requirements in any vessel, Breslow said.
"I really cannot see the majority of these grades being available in most ports," Breslow said. "I think that is another risk for ships and scrubbers."
Demand for marine gasoil, low-sulfur marine fuel and traditional higher-sulfur fuels will disrupt refining cracks, the panels said. The fuels will compete with gasoline for vacuum gas oil and with industry for distillates, swinging margins on those fuels and leaving refiners racing to respond.
"Traders and optimizers are going to have a field day," Grimmer said.
But even smaller refiners will not be left behind, he said. Complex refiners able to upgrade the most sulfurous streams have a clear opportunity. But the degree to which larger refiners would shift production to those fuels and away from gasoline or jet fuel would leave targets for refiners that lack such equipment, he added.
"If you do not, it is not hopeless," Grimmer said. "You just have to figure out how this will play out."