From time to time, we can all be guilty of a little procrastination. Well, I certainly can anyway. The time and effort required to produce the magazine that you are currently reading, as well as our quarterly Tanks & Terminals supplement and the latest news for our website (www.hydrocarbonengineering.com), can occasionally mean that certain jobs are left on the ‘to do tomorrow’ pile. While it’s unusual for an urgent or important task to be left for too long, the little jobs can quickly add up: a bulging email inbox that needs managing, an industry report that needs reading, a round of tea that needs brewing. I am currently delaying refilling my stapler. That can wait until tomorrow.
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Eventually, however, all of these small but essential tasks need completing, and the consequences of delaying certain jobs for too long can be disastrous (you don’t want to be the one who never makes the tea in our office).
KBC Advanced Technologies recently issued a warning that the refining industry may be guilty of delaying its preparations for an impending change that is set to have a significant impact on the industry. Last year, the International Maritime Organization (IMO) announced that it is to introduce a strict marine fuel sulfur cap starting in 2020, rather than 2025. Under the new rules, the sulfur content of the fuel oil used by ships will be limited to 0.5% mass/mass (m/m), which is a significant reduction on the current global limit of 3.5% m/m. KBC conducted a survey of refiners across the US, Europe, the Former Soviet Union and South Africa, and found that only 15% of oil refiners claim that they currently have a plan in place to cope with the new rules.1
It would seem that shippers and refiners are taking a ‘wait-and-see’ approach to the rule changes; both holding out for the other to make the necessary investments to ensure compliance. KBC’s Chief Economist, Stephen George, explains: “While the shipping industry expects the refiners to meet their supply requirements, the refining industry is still waiting to know to what extent the shipping industry will install emission ‘scrubbers’ on board.”
This is a high-risk strategy for some oil refiners. KBC’s report suggests that just 10 – 15% of vessels are currently expected to install scrubbers (rising to 20% by 2025). The remaining vessels are likely to use low sulfur fuel oils or other clean fuels, e.g. LNG. As such, the market for high sulfur fuel oil (HSFO) is likely to be limited after 2019, and refineries in regions that currently have a surplus of heavy fuel oil can expect to face significant challenges to dispose of this product. Ultimately, this could lead to production cuts or even closures. KBC’s report concludes that refineries must decide whether to continue to produce HSFO, invest in significant upgrades in order to adapt to the specification change for bunker fuel, or cut their exposure to this market altogether.
While the IMO’s new rules may be a few years away, it is clear that refiners should act now in order to implement an appropriate strategy for the challenges that lie ahead.
- BAROUNI, R., ‘The IMO’s 2020 marine fuel sulphur cap and challenges for the global refining industry – the time for action is now!’, KBC Advanced Technologies, (April 2017).