White House still studying IMO change: Refiners

US refining executives today said President Donald Trump's administration appeared undecided on marine fuel changes that could increase diesel prices in 2020.

A senior administration official confirmed concern over fuel costs ahead of International Maritime Organization (IMO) discussions in London on implementing long-approved lower-sulfur marine fuel requirements.

US refiners opposed to any change to the rule said the administration was still gathering information.

"I do not think they have come to a conclusion yet," Valero vice president of strategy Jason Fraser said on a quarterly earnings call. "They are just trying to understand the situation."

Flag states for more than 96pc of global shipping tonnage have agreed to adopt beginning 1 January 2020 marine fuel systems that reduce emissions from the current 3.5pc sulfur fuel to 0.5pc sulfur. Vessels will use exhaust-scrubbing systems, alternative fuels such as LNG and lower-sulfur distillate blends to meet the standards. The shift should initially slash demand for high sulfur fuel oil (HSFO) consumed today as marine fuel in favor of blends that will compete with transportation diesel, heating oil and jet fuel.

Investment bank Goldman Sachs last month estimated lower sulfur fuel oil (LSFO) would fill 1.35mn b/d of demand left by plunging HSFO consumption. Barclays estimated 1.9mn b/d of demand.

A senior administration official confirmed concern over how the rule could increase transportation diesel, heating oil and jet fuel costs. The White House declined to comment yesterday on initial reports IMO would reject the proposal and move forward with an amendment punishing vessels still having higher-sulfur fuel in their tanks on 1 March 2020.

"Our main takeaway so far is that the committee seems to remain firm in its commitment to fully implement the specification change on 1 January 2020, and to make sure the right enforcement tools are available," Fraser said.

Refiners have begun compiling investments made to deliver compliant fuels to persuade the administration the change would offer US economic benefits. But ultimately the administration may lack the ability to change the rule now, midcontinent refiner CVR Energy chief executive David Lamp said.

"The White House is just thinking of the long term, what they can do to ease the pain of it," Lamp said. "But I do not know that they have any particular recourse to do that."