New regulations aiming to reduce sulfur emissions from ocean-going freight went into effect January 1, 2020. The changes are creating rapid adjustments across the global fuel supply chain.
With this regulation, the International Maritime Organization (IMO) ruled that the current maximum fuel oil sulfur limit of 3.5 weight percent (wt%) will fall to 0.5 wt%. This is the largest reduction in the sulfur content of a transportation fuel undertaken at any one time. Oil refineries must drastically reduce the sulfur content of their products as shipowners switch to very-low-sulfur fuel oil (VLSFO) or marine gas oil (MGO).
Refiners have two choices. They can maintain their current operations and produce high-sulfur fuel oil (HSFO) or they can make conversion investments that allow their facilities to produce VLSFO. Refiners that choose to continue producing HSFO will likely need to find new markets and new customers for their product. Currently, HSFO accounts for 70 percent of all global bunker demand but that will change rapidly with these new regulations.
Refiners that make conversion investments such as coking and hydrocracking, could see increased demand for their VLSFO and MGO. One potential downside is that making VLSFO will require additional storage capacity. These enhancements could also create higher logistical costs as low-sulfur streams must be separated from high-sulfur streams.
However, those who choose to make these investments early could see big rewards particularly if shipowners prove to be brand loyal. Some shipowners are concerned that mixing VLSFO from different producers can cause serious engine problems. Early adopters could hold their market share if shipowners choose to continue purchasing VLSFO from the same producer.
Fuel Shifts Brings Increased Oil Demand & Refinery Utilization
At the industry level, shifting fuel demand from HSFO to a combination of VLSFO and MGO will increase the overall oil demand in the short term and will create a need for higher refinery utilization. Considering the lead time on conversion projects, any decisions must be made swiftly and strategically.
Matrix NAC is Your Partner for Turnarounds & Capital Projects
Whatever strategy you employ to adapt to the changing bunker fuel market, you need a partner who has your best interests in mind. A trusted partner, like Matrix NAC, can help you navigate changing regulations and markets. Our team is committed to finding solutions that add value to your business. With direct-hire union labor and more than 30 years of experience, we have the right team and the right expertise to help guide your strategic planning and execute your capital projects.
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