The introduction of the 0.50% Sulphur cap will result in significant changes to fuel demand, as most Heavy Fuel Oil (HFO) on the market has S levels well above 0.50%.
Ships will have several options to comply:
- Use distillate type fuels
- Use newly developed fuels with 0.50% sulphur
- Install an exhaust gas abatement system and continue to use high sulphur HFO
- Switch to Liquefied Natural Gas (LNG)
Fuel demand in 2020 will thus depend on the choices made by the shipping industry to achieve compliance with the new 0.50% sulphur requirement.
The refining industry continuously makes investment decisions based on global market conditions and regulatory outlook. These decisions however are made by individual refinery operators, based on their assessment of the market evaluation. In various geographies around the world, refiners are bound by competition law constraints that prevent them from developing business plans in a concerted way.
Refining is an integrated business with numerous interdependencies. Major changes in a refinery’s configuration may affect the whole production. Also a refinery has to find a good economic use for all fractions that it extracts from its crude oil.
To prepare for the decision on the implementation date for the 0.50% sulphur requirement, IMO commissioned a Fuel Availability study. The study was executed by a consortium led by CE Delft and used a global model of the refining industry to evaluate its capability to supply sufficient volumes of compliant fuel.
The study concluded as follows:
“The modelling results indicate that the refinery industry can produce sufficient amounts of marine fuels of the required quality in the base case, the high case and the low case while at the same time supplying other sectors with the petroleum products they require.”
Several shipping and refining industry bodies co-sponsored a supplemental study that was also made available to IMO ahead of its 2016 decision. The supplemental study used a long established global refining model and came to a rather different conclusion:
“Model results point to extreme difficulty – and indeed potential infeasibility – for the refining sector to supply the needed fuel under the Global Sulphur Cap and to simultaneously meet all other demand without surpluses or deficits. Market impacts are projected as very substantial across all products and regions worldwide, not just marine fuels, and, consequently, potentially significant impacts across economies and sectors.”