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Ross McCracken

Ross McCracken

Ross is an energy analyst, writer and consultant who was previously the Managing Editor of Platts Energy Economist

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Oil Is Going Nowhere In Maritime Transportation

Shipping

What do Japan’s recent positioning in favour of open-loop scrubbers and the global trade slowdown have in common? They will both serve to slow fuel use change in the shipping sector.  

The International Maritime Organisation’s new rule reducing the limit for sulphur in fuel oil used on board ships from 3.5% to 0.5% comes into effect on January 1, 2020. This will cause a radical change in fuel use by ships, but primarily a shift from one oil product – High Sulphur Fuel Oil (HFSO) – to other oil products – Low Sulphur Fuel Oil (LSFO) and Marine Diesel Oil (MDO).

This presents the refining sector with multiple challenges, not least the production of sufficient quantities of 0.5% fuel oil, essentially a new product, in the context of insufficient desulphurisation capacity, and the problem of what to do with a large surplus of HSFO no longer required by the shipping industry. The lack of desulphurisation capacity means HSFO production cannot be avoided in the attempt to supply the needed volumes of lower sulphur fuels.

Refining throughput should rise, giving a boost to oil demand. This boost will be real but also somewhat artificial as very low-priced HSFO temporarily pushes out other feedstocks in sectors such as refinery own use, power generation and cement production.

However, the IMO’s sulphur regulation is only one part of the story.

The organisation in April last year also resolved "to reduce the total…




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