Tag Archives: low sulfur fuel oil

The 2020 Deadline

image from wikipedia

Circle January 2020 on your calendar for what could be a major disruption to the energy market and a jolt to the global economy.The origin of the problem isn’t some oil cartel’s machinations, a looming war or even a technological shift — it is a bureaucratic body that few people have heard of: the International Maritime Organization. Just 30 months from now the cargo vessels that are the lifeblood of global trade will be required to cut the sulfur content in their fuel from 3.5% to 0.5%.

Ships move more than 10 billion tons of cargo a year and do it far more efficiently than road or rail, but it comes at a high cost in terms of overall pollution because ships use fuel oil, which is just about the cheapest, dirtiest stuff to come out of refineries. About 9% of all sulfur dioxide emitted globally comes from ships, contributing to acid rain and many premature deaths annually. Even the new cap is 500 times the sulfur content of most road diesel.

Even with significant investment, refiners may not be ready and ships may have to burn more expensive marine diesel.”Marine diesel affects land diesel which affects jet fuel which affects gasoline,” explains Mr. Tallett. That could cause the prices of those fuels to go up by 10% to 20%.

The only solution may be to simply refine more oil, which means increasing overall demand, to get enough low-sulfur fuel out of the world’s refineries. The International Energy Agency worried about the impact in a February 2017 report, yet it assumes many ships will install marine scrubbers to clean the dirty fuel and that refiners will add units to reduce sulfur content — both expensive propositions.

Excerpts from High Seas are to Deliver a Shock to Energy Sector, Wall Street Journal, June 7, 2017

Oil Industry Resistant to Change

Global efforts to drastically reduce toxic sulfur emissions in the shipping industry will likely be delayed for years due to the reluctance of refiners to invest billions of dollars to produce cleaner burning fuel.  The U.N. shipping agency, International Maritime Organization (IMO), has set a 2020 deadline for the maritime community to slash the amount of sulfur burned by the global fleet, blamed for thousands of deaths every year.  The IMO estimates the industry needs to invest nearly $150 billion in secondary refining capacity to ensure enough supplies are available.

IMO’s cap can only be realistically met through the use of cleaner burning fuels, known as middle distillates, already in short supply due to high demand from automobiles, airplanes and power stations. As a result of the changes, demand for such fuels could rise by up to 50 percent, or an additional 600 million tones, from current levels by 2030, according to estimates by oil major ExxonMobil. “This represents a major increase in distillate demand, a product that has experienced high growth even without the marine fuel growth,” said Vincent Chong, global head of ExxonMobil’s marine fuel division.

Gas oil, a key middle distillate product, accounted for 42 per cent of global oil products growth in the third quarter of 2010, expanding twice as quickly as the same period in 2009, according to the International Energy Agency’s December oil market report.  Cheaper high-sulfur residual fuel oil (HSFO) — the sludgy, bottom of the barrel residue left behind from refining more profitable fuels — is most commonly used by ships now.  If the cap is imposed, refiners will have to scramble for waytonessing up millions of tones of the fuel. Global residual fuel production in 2010 is estimated at around 570 million tones with residual bunker consumption at around 190-200 million tones, according to a study by energy consultants Poten & Partners.

The shipping industry, which transports about 90 percent of the world’s traded goods by volume, does not believe enough low sulfur marine fuel will be produced in time for its more than 50,000 merchant vessels.  “We will monitor the 2020 deadline very carefully because we believe the bunker fuel supplies to meet the limits may not be available,” said Torben Skaanild, chief executive of BIMCO, the world’s largest ship owners’ association.

Although seaborne trade contributes less than 10 percent of global sulfur emissions, the burning of bunker fuel by ships is blamed for 60,000 cancer-related deaths worldwide each year, according to a published 2007 study.  To help prevent this, the IMO has passed regulations to cut sulfur emissions by more than 80 percent by reducing the air pollutant’s presence in marine fuel to 0.5 percent by 2020 from the current global average of 2.7 percent.

Some refiners have earmarked funds to make the necessary upgrades to meet the expected rise in demand. South Korea’s No.2 oil refiner GS Caltex will invest almost $1 billion to raise its capacity to convert heavy oil into cleaner fuel by a quarter from 2013, as it races to bethe country’s top producer of high-value distillates.  Around 20 percent of a refiner’s output comprises residual fuel oil, according to ballpark estimates from industry officials.  Analysts, however, do not expect enough refiners would agree to the needed investment within the relatively tight timeframe.  “Show refiners the money and they’ll likely show you the barrels,” said Poten & Partners.  “But these barrels of marine distillate might not be readily available everywhere and they might come with a sticker price that might shock some people.”  But even if a refiner decides to upgrade its facility, it can take a decade or more to fully execute the changes, making the 2020 deadline unrealistic, analysts said.

Another alternative was for refiners to “desulfurize” HSFO into a lower-sulfur version, an option that provides little economic benefit for the industry.  “Considering the gap between low sulfur fuel oil and HSFO prices, it does not seem to be attractive for any new refiners to invest in new processes or change their oil basket to raise LSFO output,” said Eduardo Bertonha de Campos, a market analyst with Petrobras.

Despite the complexity of the marine fuel conundrum, a potential cure-all exists in the form of exhaust abatement technology, also known as scrubbers.  In theory, this onboard system removes sulfur emissions from marine fuel, effectively allowing heavy sulfur fuel to be used while satisfying the upcoming curbs.  “The 2020 date is sufficiently far away enough in the future,” said Eivind Vagslid, head of the IMO’s chemical and air pollution prevention section. “We hope there will be a combination of new refinery capacity and the use of scrubbers.”

But the industry was divided over whether the technology would be ready for mass adoption since it was still being tested and manufactured by only a handful of companies worldwide.  “Scrubbers won’t be the silver bullet. A sizeable portion of the fleet will still need to rely on low sulfur fuel being available,” said Kurt Barrow, vice president of Purvin and Gertz.

Others options are the use of alternative fuels like liquefied natural gas (LNG) and biofuels, but critics again doubted their suitability for widespread use.  LNG would make up only 5 percent of bunker use by 2025 due to the cost of retrofitting vessels to use the new fuel, said Robin Meech, managing director of UK-based Marine and Energy Consulting.  Given the issues at hand, many affected parties were pushing for the IMO deadline to be extended. An IMO committee was expected to review the supply issue by 2018, and could push the deadline back to 2025.  “I don’t think there is a single solution that can surmount the challenges that lie ahead,” said Exxon’s Chong.

By Francis Kan and Randy Fabi, Analysis: Refiners threaten anti-pollution efforts in shipping, Reuters, Jan. 17, 2010