January may not be through yet, but the countdown is well under way to the Jan. 1, 2020, implementation of the International Maritime Organization’s sulfur limit reduction from 3.5% to 0.5% for marine bunker fuels.
As OGJ reported on Jan. 16, the US Energy Information Administration anticipates that, starting in 2019’s final quarter, this regulation will encourage global refiners to increase runs and maximize upgrading of high-sulfur heavy fuel oil into low-sulfur distillate to create compliant bunker fuels.
It also could create more demand for LNG as an alternative, other energy observers suggest.
“The most noteworthy consequence will be on diesel demand,” said Andrew Stanley, an associate fellow in the Center for Strategic & International Studies’ Energy & National Security Program, in a Jan. 18 commentary about emerging 2019 oil market trends.
Stanley noted that in its latest Short-Term Energy Outlook, EIA forecast that diesel fuel margins could increase from an average 43¢/gal in 2018 to 48¢/gal in 2019 and 65¢/gal in 2020.
“Because of the numerous and diverse set of decision makers involved in complying with the regulation and the global nature of the regulation, significant uncertainty exists about the forecast outcomes of the regulation,” EIA said.
Stanley said that as it drives up demand for diesel as an alternative to high-sulfur fuel oil, the regulation also will have an impact on differentials in the crude oil market, increasing demand for light, sweet crude over heavier grades.
He also pointed out that much uncertainty exists about the new regulation’s possible outcomes because of unknowns regarding rates of possible noncompliance and enforcement. “Expect these to become clearer as the year progresses,” Stanley said.
Global refiners are responding already. For example, Royal Dutch Shell PLC has developed a suite of fuels for the worldwide shipping industry that includes marine gas oil (MGO), very low-sulfur fuel oil (VLSFO), high-sulfur fuel oil (HSFO) for ships with liquefied scrubbers, and LNG.
Tests and partnerships
“Building upon our experience with the 0.1% sulfur launch, Shell is preparing for the implementation of the 0.5% sulfur blends by performing fuel and engine tests and partnering with leading industry players,” it said in a recent bulletin.
Shell also is developing key locations to supply LNG customers. It considers LNG “the next step in the journey toward zero emissions.”
LNG can help ship owners and operators stay below emissions limits since it contains virtually no sulfur and emits fewer nitrogen oxides and particulate matter, Shell said. It can compete in maritime shipping by being priced off oil markers to reduce risk and keep the playing field level, Shell said.
About the Author
Bob Tippee
Editor
Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.