This report provides a thorough introduction to the IMO's sulfur cap on marine fuel, its impact on markets and what to expect from the new regulatory framework. Aiming to provide market-leading insight and analysis, S&P Global Platts outlines the regulation's impact on refiners and shipowners, analyzes how markets will adapt, and offers birds-eye view on how it could affect the environment.
The IMO’s lower sulfur cap is set to take away the bulk of marine fuel oil demand from the start of next year. Most shipowners and operators will switch to burning new low-sulfur bunker blends, meaning an almost overnight shift of 3 million b/d of demand.
The change poses a tough challenge to fuel oil producers, and prices are expected to drop dramatically towards the end of 2019. Ships fitted with scrubbers to clean their emissions on board are set to benefit from this drop in their fuel bills, but only a small fraction of the global fleet are expected to invest in the systems by 2020.
LNG producers can expect to see some new demand for their product as an alternative marine fuel. But the IMO’s greenhouse gas strategy may hold back interest in LNG bunkering beyond the 2020s.
The global refining industry is investing in new units aimed at reducing fuel oil output and maximizing middle distillate production. Russian fuel oil exports in particular have fallen dramatically over the past two years.
But new sources of fuel oil demand can be expected to emerge in the coming years, partly offsetting the decline in marine demand. Saudi Arabia has already increased fuel oil consumption for power generation and its water desalinization plants, and Bangladesh is expected to become another key consumer.
2020 will not be the end of the road for fuel oil. A century after its first move to widespread adoption in shipping, fuel oil still has a significant role to play in the oil industry.