EIA has highlighted challenges refiners and shippers will face from the implementation of a global 0.50% sulfur cap in 2020.
The U.S. Energy Information Administration (EIA) has highlighted a number of challenges refiners and shippers will face as a result of the implementation of a global 0.50 percent sulfur cap in 2020.
The first challenge for refiners is to increase the supply of lower sulfur blendstocks to the bunker fuel market, says EIA.
EIA notes that one way to accomplish this is to shift more low sulfur distillates into the bunker fuel market, or alternatively, utilise low sulfur intermediate refinery feedstocks in bunker blends.
The second challenge for refiners to address will be figuring out what to do with the high sulfur residual oil that cannot be blended into bunker fuel due to the new regulations.
While one option to achieve this would be to add capacity to desulfurise residual oil - a situation EIA notes has unattractive economics - another is to expand refinery units to upgrade heavy hydrocarbons into lighter, more valuable products - a move that would necessitate significant investments.
Refineries would be faced with investments and costs that are acceptable only if there is certainty of future demand from the shipping industry
"In either of these cases, refineries would be faced with investments and costs that are acceptable only if there is certainty of future demand from the shipping industry," said EIA.
Further, EIA says that widespread scrubber installations would enable the continued use of higher sulfur residual oils, a possible development that may make refiners hesitant committing to large investments in refining units to upgrade residual oils.
EIA also notes that 2020 presents shippers with many challenges that have been discussed previously by Ship & Bunker.
These challenges will require shippers to decide between scrubber installations, switching to new lower sulfur blends or to non-petroleum based fuels, or even installing engines capable of burning alternative fuels, such as liquefied natural gas (LNG).
"However, the infrastructure to support use of LNG as a shipping fuel is currently limited in both scale and availability," adds EIA.
As Ship & Bunker reported earlier this week, a new report prepared by Barry Rogliano Salles' (BRS') Tanker Department concludes that, alongside a surge in demand for low sulfur MGO in 2020, the prices of such fuel will "soar to steep premiums over fuel oil, which is expected to experience a collapse in demand."