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Investments in the production of lower-sulfur fuels at refineries across the world have reached US$1 billion to date, a BP executive said at an industry forum in the UAE.
“There’s been a huge amount of investment in refineries since 2015 and (it) will continue beyond 2020,” Eddie Gauci, BP’s global head of marine fuels, said as quoted by Reuters at the Fujairah Bunkering and Fuel Oil Forum.
Refiners have been preparing for the entry into effect of a sulfur emission cap drafted by the International Maritime Organisation. The cap is 0.5 percent, down from 3.5 percent, and it enters into effect in January 2020.
The new rule has sparked a lot of speculation about where oil markets will swing in the coming months and years, with warnings about a possible shortage of middle distillates and an oversupply of light crude. What seems certain enough is there will be a lot of fuels in storage ahead of the entry into effect of the new rule.
“We will see some floating storage of high sulfur or low sulfur for a period of time until the land-based infrastructure establishes some kind of equilibrium that’s in tune with what grades of fuel are called for in particular locations,” BP’s Gauci said.
Earlier this month the International Energy Agency said in its annual Oil 2019 report, “The 2020 IMO marine regulation change is one of the most dramatic ever seen to product specifications, although the shipping and refining industries have had several years notice.”
So refiners are investing in preparatory activities, be it by adjusting their equipment to produce lower-sulfur fuels or, most immediately, in changing refinery maintenance schedules to capture the higher profit margins of middle distillates such as diesel and marine gasoil, which have a lower sulfur content, with an anticipated spike in demand later this year.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
The story is about bunker fuel for ocean going ships. Starting next year the ships will have three options for legal fuel below 0.5% sulfur. These ships all have large to very large diesel engines.
(a)...distillate fuel, mainly marine gas oil (similar to diesel fuel). High cost, low BTU content therefore reduced range for the ships before the next fueling is required. And, the more tonnage of fuel that is carried, the less tonnage of cargo that can be carried.
(b)...high sulfur heavy fuel oil (high BTU content) with the stack gas cleaned by scrubbers that discharge the sulfurous scrubbing water into the ocean. The scrubbers are expensive to install, and some regions prohibit the discharge. Closed-loop scrubbers are available that do not discharge the polluted water, but these are maintenance headaches.
(c)...low sulfur heavy fuel oil, high BTU content, undetermined price and availability.