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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Diesel Demand Is Set To Soar

The International Maritime Organization’s new rules on fuel emissions that will come into effect in 2020 will help to lift diesel demand, according to industry insiders attending an S&P Global Platts event in Brussels this week.

The new emission rules stipulate that only vessels using fuels with a sulfur content of 0.5 percent or less will be allowed to roam the oceans, as per the IMO’s strategy aimed at cutting total carbon emissions from maritime transport in half by 2050. Those that use fuel with a higher sulfur content—the current limit is 3.5 percent—will only be allowed to remain in operation if they are equipped with emission-clearing equipment, which comes at no small cost.

As a result, expectations are, naturally, that high-sulfur fuels demand will take a hit while low-sulfur fuels enjoy higher demand. Diesel is among these latter fuels, as is low-sulfur fuel oil. According to one attendant at the S&P Global Platts European Refining Summit, the additional demand for these two fuels could reach 1.6 million bpd.

European refiners have cause to celebrate: diesel demand on the continent has been falling recently as a result of the so-called Dieselgate, the scandal with Volkswagen’s emission-control rigging, and as a result of EU policies driving a shift from diesel to gasoline and electric cars. Interestingly, research suggests that the replacement of diesel vehicles with EVs will not have any significant impact on CO2. Nevertheless, the EU continues to push its EV agenda.

Related: Rising Costs Weigh On Permian Gas Production

European refiners are not the only one who will benefit from this demand rise. American refiners are set to reap benefits, too, although these will come at a cost. Last month, energy industry expert Robert Rapier warned in a story for Forbes that diesel prices are set for an increase as a result of the 2020 maritime emissions rule change.

Refiners, Rapier noted, have already gone through one capacity upgrade when the first ultralow-sulfur diesel regulations entered into effect in the United States in 2006. Now they will have to boost their ultralow-sulfur diesel production capacity to satisfy the higher demand from the maritime industry. This means investments into equipment and more purchases of sweet crudes that are lower in sulfur content than sour crudes, which will naturally push up the price of the crude.

Related: California Just Signed The World’s Most Aggressive Climate Bill

With these projections of higher diesel demand, refiners join LNG producers in the celebration of the new maritime transport emission rules: LNG is another alternative to high-sulfur fuels that will enjoy a pick-up in demand after 2020.

Initially, however, diesel and low-sulfur fuel oil will be the bigger beneficiaries of the new rules: there are just 125 LNG-powered ships in the global fleet, according to data from Norway-based risk management firm DNV GL. That’s 125 out of 60,000 ships in commercial maritime transport. The total global fleet is some 90,000 vessels. Another 400 to 600 are expected to launch by 2020, but this will still be a tiny portion of the total fleet.

With scrubbers—equipment that strips sulfur emissions from the fuel—not very popular as of yet, chances are that diesel and low-sulfur fuel oil will be the maritime fuels of tomorrow, at least for a while, until—if ever—adoption of LNG vessels begins for real.

By Irina Slav for Oilprice.com

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  • Steve on September 16 2018 said:
    The article you cite fro your claim that there’s no difference in CO2 emissions does NOT say what you claim it does.

    There are dozens of analysis that show very large differences in emissions between diesel and EVs.

    Please correct the error, as it stands you are misleading your readers.
  • Simon Jacques on September 16 2018 said:
    The low sulphur fuel mandate is not related to the IMO plan to reduce carbon emissions from maritime transport. Switching to low sulphur fuel has no impact on carbon emissions. It improves air quality. Similarly, this article erroneously claims that "research suggests that replacement of diesel vehicles with EVs will not have any significant impact on CO2". The cited research looked at emissions other than CO2 (primarily NOx).
  • Madan R on September 17 2018 said:
    Great news. The bunker fuel and fuel oil are very dirty, polluting and poisonous fuels that the shipping industry should get rid of.

    May be the diesel can be mixed with cleaner fuels like Methanol, Ethanol to reduce pollution even further.

    With more diesel cars giving way to electric cars, a lot of diesel will be saved and that could be used to power water going vessels.

    Power plants are also reducing the usage of fuel oil and moving towards cleaner natural gas, solar, wind, etc.
  • Peter Robert Breedveld on September 19 2018 said:
    More regulations from a un-elected bureaucrats. It is time to take our world back from the bureaucrats and environmental extremists.

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