The Trump administration may be taking second looks at oil and gas regulations imposed by its predecessors. But international accords that also could have major impacts are moving ahead. One of these is the International Maritime Organization's Marine Environment Protection Committee and its commitment to reduce marine bunker fuels' sulfur limits to 0.5%.
"At its July meeting, the IMO's committee sent a clear signal that the sulfur regulatory change will take place in 2020 and not be delayed to 2025. This reaffirmation of a decision taken in October 2016 will help the industry prepare for a substantial change in the fuel oil and diesel markets," said Chris Cote, a market analyst at ESAI Energy in Wakefield, Mass.
The biggest bunkering fuel oil market change will be the destruction of 1.2 million b/d of demand for bunker fuel oil and creation of about 1.4 million b/d more of demand for bunker gas oil, for which demand currently is about 800,000 b/d, he told OGJ.
"The main fuels to meet the new sulfur requirements will be gas oil and gas oil-based blends that include low-sulfur fuel oil and other components," Cote said. "Refiners will need to make some decisions."
At this point, everyone is waiting to see what others in the industry will do, he said. Questions include whether scrubber intakes will need to increase and whether LNG will emerge as an alternative.
"Refiners specifically will need to find out what to do with the high-sulfur fuel oil for which they no longer have a market and find a way to make enough diesel fuel to meet new bunker fuel market demands," Cote said.
He expects this new demand to increase, giving refiners incentives to increase production. "They'll be able to shift yields and increase throughput in the short term, but in the long term, these new regulations will encourage another round of new hydrotreating and coking investments," Cote said. "We think these investments will come on line after 2022."
Global ramifications
The ramifications of this regulatory change will be global, but Asia, as the world's bunkering hub, will feel the effects most, especially in Singapore, he said. "Specifically, the new regulations will turn Singapore from being a gas oil exporter into an importer," Cote said.
He noted that ESAI Energy's 5-Year Global Fuels Outlook, which was issued in July, anticipates waivers issued by ports where new blends aren't available and noncompliance will drive high-sulfur bunker fuel oil consumption after 2020.
This "Wild West" atmosphere won't last long as enforcement improves and blends are accepted more widely, raising effective global compliance to around 75% by 2022, it said.
