Residual fuel’s losses will be all gains for liquid natural gas (LNG), scrubbers, and diesel oil.
IMO Implements New Rules
On January 1, 2020, rules limiting the amount of sulfur emitted by ships came into force. The International Maritime Organization (IMO) began enforcement of the rules, which required all ocean-going vessels to use fuels with less than 0.5% sulfur content (previously, the limit was 3.5%).
Most major ships burn heavy fuel oil (also called bunker fuel), which is a type of heavy oil left over from refining lighter crudes. Standard heavy fuel oil contains on average about 2.7% sulfur.
To comply with the tightened regulations, shippers have several options. They can:
- use more expensive, but compliant, very low sulfur fuel oil (VLSFO)
- continue using non-compliant fuel, but install scrubbers on their ships
- switch the fuel source of their ship from bunker fuel to LNG
- switch the fuel source of their ship from bunker fuel to distillate fuel (which has its own separate regulations preventing use of fuel with a sulfur content over 0.1%)
Overall, shippers are examining a variety of options, as the layout of the ship, local pollution regulations, global fuel prices, and the need to maintain a reliable fuel supply chain vary the economic calculus for each supplier. Nonetheless, clients of shipping companies can expect the cost of shipping to rise as shippers pass price increases on to their customers.
Some shipping companies will outfit their ships with scrubbers, though installation and operation of the scrubbers eat into shippers’ profit margins. Some surveys indicate that 19% of shippers intend to install scrubbers on their ships. However, concern about the added cost and environmental regulations limiting emissions releases while in port will constrain adoption.
Alternate Fuels Profit
Companies that eschew scrubbers may transition to alternative fuels, especially distillate and LNG. Increased demand is expected to raise prices. LNG prices have increased in anticipation of the IMO regulations. Nonetheless, the ongoing LNG production boom in the US is expected to moderate price increases to some extent.
Want to Learn More?
We have you covered! For additional information and analysis of US industry trends, see Refined Petroleum Products: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group. This report forecasts to 2024 US refined petroleum products demand and production in barrels at the refiner level. Total demand and production are segmented by type in terms of:
- distillate fuel
- jet fuel
- residual fuel
- other products such as asphalt, petroleum coke, and still gas
To illustrate historical trends, total demand, total production, the various segments, and trade are provided in annual series from 2009 to 2019.
This report encompasses finished petroleum products manufactured at petroleum refining facilities via the processing of crude oil and other liquids. Hydrocarbons and other liquids separated at natural gas plants, such as liquefied petroleum gases and pentanes plus, are excluded from the scope of this report. Finished motor gasoline blends containing up to 10% ethanol content are included; blends with greater than 10% ethanol are not. Reported figures represent the volume of finished products, with blending components not considered separately. Re-exports of refined petroleum products are excluded from demand and trade figures.
While you’re there, check out our related reports, which include:
About the Author
Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries.