IMO2020 Rule Lets Sophisticated Refineries Print Money: Wood Mackenzie

Wood Mackenzie says the IMO2020 rule will let sophisticated refineries print money. File Image / Pixabay

The upcoming IMO2020 rule will give sophisticated refiners a licence to print money, according to Alan Gelder, vice president for refining, chemicals and oil markets at Wood Mackenzie.

As discussed at length in these pages, from January 1, 2020 the global sulfur cap on marine fuel falls to 0.50%, and the vast majority of the world's fleet are expected to comply by switching away from HSFO to distillate fuel products.

While the shift in demand will be a headache for less complex refineries, Gelder says it will be a boon for the biggest, complex plants that can already produce large amounts of compliant distillates while leaving minimal noncompliant fuel oil in the process.

"They'll print money," he was quoted as saying in a report by Bloomberg.

"If the shipping industry needs more clean fuels, then that's good for refining."

Eugene Lindell, a senior analyst at JBC Energy GmbH, says in 2020 crude feedstocks will also be priced lower, resulting in "an exceptionally high margin environment."

Winner & Losers

US Gulf Coast refiners are predicted to be among the winners from IMO2020. A 2016 report from Morningstar Inc said over 80% of crude processing capacity there have the coking units needed to fully process heavy crude.

In Europe, analysts at JPMorgan Chase & Co are among those who have tipped BP to be one of the biggest winners from IMO2020, who says only 3% of its output is HSFO.

Repsol SA, meanwhile, expect "two, three, four good years" in the post 2020 market. Fuel oil accounts for 4-to-5% of the Spanish oil major's production.

At the other end of the scale, Bloomberg quotes Energy Aspects Ltd. today as predicting the IMO2020 losers - those with the world's simplest refineries - may be forced to cut runs or close, with some of Mexico's state-owned coastal refineries, for example, likely to be "unsustainable".

Between the two extremes sit refiners such as Varo Energy who, as Ship & Bunker reported in December, said it has sufficient flexibility to deal with the expected changes from the IMO 2020 rule and are "not really in a frenzy about it."

Importantly, what remains unclear is precisely how vessels intend to comply with the new sulfur cap - if indeed they intend to comply at all - with many shipowners / operators seemingly still in "wait and see mode."

Speaking at the American Fuel & Petrochemical Manufacturers' (AFPM) annual meeting in New Orleans earlier this month, Gelder accused shippers of "playing chicken" with the IMO over the new rules, and that at the moment "nobody is really doing anything."

With the IMO2020 start date only a little over 21 months away, it now seems unlikely by 2020 there will be a game changing uptake of scrubbers or alternative bunker fuels such as liquefied natural gas (LNG).

Still, ExxonMobil are among those who do not believe distillates will dominate the post 2020 bunker market, predicting instead that fuel oil-based blends will account for a significant proportion of demand.

Speaking last month during IP Week in London, the company's marine marketing manager, Iain White, declared: "It will not be a distillate world going forward, as some have said."