The introduction of the IMO’s global sulphur cap still poses a big risk to shipping and the global economy as 2020 nears, say the authors of the supplemental marine fuel availability study.
As reported, the supplemental study (commissioned by a BIMCO-led consortium) provoked debate at IMO’s Marine Environment Protection Committee in 2016, presenting a less optimistic analysis of potential availability issues than the official study by CE Delft and others. Now the authors – EnSys Energy and Navigistics Consulting – have updated the study and say that the potential impact of low availability is becoming worse, not better, as the picture becomes clearer.
The updated study notes that demand for low-sulphur fuel will be higher than anticipated due to low uptake of scrubbers and limited availability of low-sulphur fuels. It predicts a ‘scramble period’ in which less complex refineries, competing to produce distillate fuels, bid up the price of light sweet (low-sulphur) crude.
According to EnSys’s oil industry modelling, this scramble could cause distillate prices to exceed US$1,000 a tonne and US retail gasoline prices to spike at more than US$5 a gallon in 2020. These peaks will be within range if Brent crude prices begin 2020 at around US$80 a barrel and spike to around US$120 a barrel.
Refinery capacity will be a key issue. Navigistics Consulting’s analysis shows that nearly four million barrels a day of high-sulphur residual fuel will need to be ‘switched’ to 0.5% sulphur marine fuel by 1 January 2020 to achieve full compliance. However, EnSys Energy’s assessment of the global supply-demand refining balance points to a maximum capability of around three million barrels a day in the first half of 2020.
Martin Tallett, president, EnSys Energy, said: “Especially if allied to strict enforcement, this outlook leads to severe market strains affecting all products in all regions – not just marine fuels. The increase in product ‘supply costs’ could take between US$500 billion and US$2 trillion out of the global economy for the year.”
David St. Amand, president, Navigistics Consulting, noted that a “strict” implementation approach by IMO will also likely lead to severe economic disruption in the maritime industry. Challenges could range from substantial increases in the cost of crude oil and petroleum products shipped by sea, to potentially problematic handling of situations where compliant fuel is not available.
The implementation plan for IMO’s 2020 marine fuel rule will be debated at a special Intersessional meeting of IMO’s Pollution Prevention and Response (PPR) sub-committee beginning on July 9 in London.
The study was updated as part of the subscription-based Marine Fuels 2020 service provided by EnSys and Navigisitics to oil companies, ship owners, and bunker suppliers.