Murkowski questions IMO 2020 preparations: Update

Adds Marathon Petroleum comment.

US fuels and marine transportation industries must do more to show they have prepared for potential higher shipping prices that begin next year, the top US senator on energy said.

Senator Lisa Murkowski (R-Alaska), chairman of the Committee on Energy and Natural Resources, was not convinced the US has prepared sufficiently to cope with the new marine fuel regulations, which could hit her state especially hard, she told reporters yesterday on the sidelines of the IHS-CERAWeek conference in Houston.

"The reason I am worried about it is because I have not been hearing enough about it," Murkowski said. "I am concerned that we might see price spikes, and we might see price spikes that impact us directly."

Marpol treaty signatories representing almost all global shipping must, beginning 1 January, 2020, ensure marine fuel sulfur emissions drop to an equivalent 0.5pc sulfur fuel, down from the current 3.5pc sulfur. The regulations, organized under the International Maritime Organization (IMO) and called IMO 2020, will increase global competition for lower sulfur distillates and strand sour feedstocks currently sold into the marine bunker fuel market.

The IEA estimated in its annual report this week that marine gas oil (MGO) prices may double if signatories strictly enforce the regulations. High sulfur fuel oil (HSFO) demand would fall by more than half next year, from 3.5mn b/d to 1.4mn b/d, while MGO demand would rise to 2mn b/d from 900,000 b/d in the IEA base case.

Marathon Petroleum chief executive Gary Heminger said today that the industry worldwide was prepared for the change. Compliance would not be achieved overnight, he added.

US refiners were so focused on distillate production to meet the requirements that it could make gasoline demand more attractive, he said.

"There has been such a maximization of diesel, we think gasoline could be the product du jour this summer," Heminger said.

President Donald Trump's administration raised concerns last fall about the regulation and potential higher prices for US heating oil and transportation diesel. Complex US refiners, which expect to benefit from cheaper, higher sulfur feedstocks and higher diesel demand, have told the administration the US industry has prepared for the change.

IEA director Fatih Birol told senators in late February that the price increases would be short-lived. Alaska's dependence on marine shipments for goods could make the state more vulnerable to price spikes, Murkowski said.

"There is no transitioning in, no ‘we will come back when you are ready'," Murkowski said. "I think we need to be ensuring that we have availability of supply — that our refiners are ready and those in the marine transport industry are ready."