• 3 minutes Nucelar Deal Is Dead? Iran Distances Itself Further From ND, Alarming Russia And France
  • 5 minutes Don Jr. Tweets name Ukraine Whistleblower, Eric Ciaramella. Worked for CIA during Obama Administration, Hold over to Trump National Security Counsel under Gen McCallister, more . . . .
  • 9 minutes Shale pioneer Chesepeak will file bankruptcy soon. FINALLY ! The consolidation begins
  • 12 minutes China's Blueprint For Global Power
  • 3 hours Pioneer's Sheffield in Doghouse. Oil upset his bragging about Shale hurt prices. Now on campaign to lower expectations, prop up price.
  • 1 hour Tesla Launches Faster Third Generation Supercharger
  • 22 mins EU has already lost the Trump vs. EU Trade War
  • 2 hours Passerby doused with flammable liquid and set on fire by peaceful protesters
  • 1 hour Who writes this stuff? "Crude Prices Swing Between Gains, Losses"
  • 2 hours ''Err ... but Trump ...?'' #yawn
  • 52 mins China's Renewables Boom Hits the Wall
  • 21 hours Climate Change Consensus Shifts in Wind, But Gas Is Still the Right Move
  • 1 day Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 3 hours Crazy Stories From Round The World
  • 1 day Atty General Barr likely subpeona so called whistleblower and "leaker" Eric Ciaramella
  • 2 hours Haaretz article series _ Saudi Arabia: A Kingdom in Turmoil | Part 1 - Oil Empire
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

The Biggest Loser From New Fuel Standards

Russia is currently the world’s biggest producer and exporter of fuel oil. But in just over a year, it could turn out to be the biggest loser from the new regulations on the use of low-sulfur fuel oil to power ships.

Russia’s fuel oil is high on sulfur, while according to the new rules by the International Maritime Organization (IMO), only 0.5-percent or lower sulfur fuel oil should be used on ships beginning January 1, 2020, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers.

Russia’s refiners have started to upgrade oil refineries to produce more higher-value oil products and less high-sulfur fuel oil (HSFO), but analysts think that the world’s largest producer of fuel oil now won’t be ready in time to meet the new regulations on January 1, 2020. Moreover, even if Russian refiners sell their high-sulfur fuel oil to industries other than the shipping sector, they would still be unable to fully offset lost revenues from decreased demand and depressed prices of HSFO, analysts tell Bloomberg.

Russia’s lost revenue from fuel oil sales could reach US$3.5 billion, investment bank Wood & Co. Financial Services, which is focused on emerging European markets, told Bloomberg. The estimated lost revenue is more than a third of Russia’s US$9 billion export revenues from fuel oil in 2017, according to Bloomberg calculations on Russia’s customs data.

While refiners all around the world will feel the impact of the new ship fuel regulations, Russia’s refineries are likely to be the most affected, partially because many of them are Soviet-era facilities. As of the end of last month, Russia wasn’t producing any 0.5-percent sulfur or lower fuel oil—more two-thirds of domestic fuel production contains 2.5 percent or more sulfur, Bloomberg estimates on Russian Energy Ministry data show.

In addition, most refineries use the sulfurous Urals crude grade, and don’t have much choice in diversifying the crude they process. Related: Iran’s Worst Nightmare Is Coming True

Many Russian refineries plan to upgrade and add coking capacity, according to S&P Global Platts, but of some of the planned coking capacities are currently in project or planned to come online only in 2020 or 2021.

There’s “no chance for them to be 100 percent prepared,” IHS Markit senior research analyst Alexander Scherbakov told Bloomberg, commenting on the readiness of Russian refineries for the IMO 2020 regulation.

Referring to the global readiness for the new ship fuel rules, the International Energy Agency (IEA) said in its July Oil Market Report that the regulation may shift as much as 2-3 million bpd of bunker fuel demand from HSFO to a new, very low-sulfur fuel oil or to marine gasoil.

“In our latest medium-term forecast released in March, we do not expect that the refining industry can bring online the required capacity upgrades on time,” the IEA said in July.

The change could lead to a glut of HSFO of around 1.1 million bpd along with a corresponding deficit in low-sulfur fuel, leading to unfavorable margins for the less complex refineries, especially those constrained in terms of desulphurization capacity, according to the IEA.

There are options for refiners in Europe and Russia to place their potential surplus of HSFO elsewhere on the market, Ken Cowell, Tim Bennett, and Ramin Lakani at Muse, Stancil & Co. wrote in the Oil & Gas Journal in August.

Switching to low-sulfur crudes is one option for refiners globally to meet the new limits, but most Russian refineries are stuck with using Urals and won’t have the option to switch to sweeter crude grades, according to the authors. Related: Why Oil Prices Could Still Go Lower

Other mitigation strategies for refineries worldwide could be to reformulate current low-sulfur fuel oil production, change asphalt producing strategy, and expand or retrofit the existing upgrading units. But most of those options are not an option for many refineries in Russia, the authors argue, noting that “Because of their high-sulfur, single-grade crude slate, they have no flexibility to reformulate fuel oil blends or upgrader unit feed slates to produce compliant bunker fuel.”

The only options for Russian refineries are to invest in upgrading projects which won’t be ready by 2020 or to hope to seize the remaining demand for HSFO with the shipowners who would have opted for installing scrubbers on ships to continue running on HSFO.

“Some may face closure or temporary mothballing until increasing shipboard-scrubber installation could lead to a partial recovery in HSFO bunker volumes, and consequently, prices,” Cowell, Bennett, and Lakani wrote.

Lakani and IHS Markit’s Scherbakov told Bloomberg that none of the options for Russian fuel oil refiners—keep exporting, blending with high-value diesel for low-sulfur fuel oil, increasing sales to the domestic electricity generation sector, or boosting bitumen production for infrastructure projects—would fully compensate for the expected loss of revenue from selling HSFO to the shipping industry.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play