Lower sulphur in marine fuel oil rule to cost $1 trillion over 5 years

Lower sulphur in marine fuel oil rule to cost $1 trillion over 5 years

(via Gulf News) The International Maritime Organisation (IMO) specification change, which needs lower sulphur content in marine fuel oil, will lead to more demand for US sweet crude (benchmark Western Texas Intermediate) compared to heavy sour crude, resulting in cost increases of $1 trillion (Dh3.67 trillion) over five years, a senior official at S&P Platts told Gulf News.

The new IMO regulations will be implemented from January 1, 2020, under which the body will cap the sulphur content in marine fuels at 0.5 per cent, from 3.5 per cent currently.

Sweet crude is normally found in North America, Western Texas, North Sea of Europe, North Africa and Australia, Indonesia, while sour crude is commonly found in Gulf of Mexico, Mexico, South America and Canada. Crude produced by Opec members, which includes Gulf countries except Qatar and Oman, also tends to be relatively sour, with an average sulphur of 1.77 per cent.

“If you are a European refiner and normally running a dour crude, which is Russian crude in high sulphur fuel oil, you are going to lose your market for high sulphur fuel oil. It would become economic to import US crude and make bunkers from that,” Richard Joswick, managing director oil analytics at S&P Platts told Gulf News on the sidelines of a conference.

“Russian crude can go back to the Unites States or other countries like India, China that are designed for heavy sour crude, and free-up sweet crude for medium conversion refineries that don’t have it,” Joswick said. High sulphur fuel oil is 70 per cent bunker fuel.

The net effect, which is expected to be temporary and may last for only two years, is expected to increase the cost of most light product prices and freight costs, with a net transfer in excess of $1 trillion over five years from consumers to refiners, sweet crude producers, and others.

Giving more details on the arithmetic, Joswick said: the net impact would be that prices of diesel fuel, jet fuel, gasoline, sweet crude will all go up. “When we add all these pieces together — the higher costs of jet, diesel, and support for gasoline and sweet crude and freight cost and all those ramifications and spread that over a couple of years — you end up with a trillion dollars.”

However, the cost increase is expected to wither down in the short-term after the implementation of the new specification.

“This cost impact will not last forever. Ships will get more scrubbers, new refiners will start up, sweet production is increasing. Two years on in 2022, it would be back to a new normal. We would be using low sulphur fuel that won’t be as costly as it would be in 2020,” he added.

Source: Gulf News