Large U.S. refiners such as Valero and Philips 66 are set to benefit from a shipping fuel emission rule that will come into force in two years-one that has been bugging the oil industry globally.
The rule, set to enter into force in 2020, will require shipping companies to reduce substantially the amount of sulfur in their bunker fuel, which means the industry will need to find alternatives to fuel oil, of which the current rate of consumption is more than 4 million barrels daily.
Bloomberg quotes Jefferies Financial Group as expecting the U.S. refining system to be among those that will actually be able to take advantage of the rule to boost their sales. This system, according to Jefferies analysts, "has been built to take the heaviest feedstock and maximize the yield of clean fuels." The U.S. national yield of gasoline, jet fuel, and middle distillates is as much as 82 percent of the total refinery output, which compares to a global average of 63 percent.
But gasoline and other lower-sulfur oil products are not the only alternative for shipping companies: LNG consumption by the maritime transport industry is expected to grow very quickly and very substantially in the coming years.
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Today, the industry is using less than a million tons of LNG as bunker fuel. By 2030, according to forecasts reported by Reuters, this will rise to between 20 and 30 million tons annually. LNG, unlike "cleaner" oil products, has almost no sulfur content, which will make it easier for shippers to comply with the new rule that stipulates sulfur content in bunkering fuel of 0.5 percent, down from 3.5 percent right now.
The rule, enforced by the International Maritime Organization, has had some oil industry observers worried that it could wreak havoc on oil and oil product demand because of the amount of fuel oil the maritime industry uses, and could even lead to another price crash. Indeed, some companies have begun converting their vessels from fuel oil to LNG, but it remains highly uncertain how many will follow, how many will switch to a cleaner-and costlier-oil product, and how many will just break the new rule.
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. More