"The biggest change ever to affect the refining and shipping industries"
"The IMO's decision to reduce the bunker fuel sulfur level from 3.5% to 0.5% starting 1 January 2020 is the biggest change ever to affect the refining and shipping industries. But the change doesn’t stop there; the impact will be felt by crude oil producers, traders, refiners and bunker fuel suppliers, as well as being expected to cause structural changes in the sweet-sour crude price differentials.
In broad terms, the world’s ships consume about three million barrels per day of high-sulfur fuel oil (HSFO). Most vessels will have to change to more costly low-sulfur fuels. A minor share of the fleet will continue to use high-sulfur bunkers after January 2020, provided that they have installed flue gas desulfurisation systems (scrubbers) to reduce emissions. But to do so will require investment.
Refineries must find solutions for a way to manage these streams. Options include investing in residue desulfurisation, coking or switching to sweeter feeds. Residue desulfurisation is risky and unlikely, coking investments are very costly but take the refiner out from the residue market, while switching to low-sulfur crude oils will command a premium.
If we look a little closer at how prices may be affected, lighter oils with a lower sulfur content will become relatively more expensive, while at the same time reduced market demand for high-sulfur fuel oils (HSFO) will result in prices relative to Brent no longer being predictable or representative. Gasoil prices are becoming stronger due to additional oil demand for marine gasoil.
Nynas is expecting prices to increase for all highly refined low-sulfur oil products, including naphthenic base oils.”