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IHS Markit: Refiners, Shippers Not Ready for IMO's Bunker Fuels Rules
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Source:IHS Markit

The global refining and shipping industries will be hit by the new low-sulfur requirements for marine bunker fuels, set to enter into force five years earlier than many expected.

According to a new analysis from IHS Markit, the two industries are set to experience rapid change and significant cost and operational impacts, as they must comply with the new regulations by January 2020, as confirmed recently by the International Maritime Organization (IMO).

"While the IMO is taking positive action to address the environmental impacts of air pollution from ships, the rapid change creates significant disruption for both the refining and shipping industries," Kurt Barrow, vice president of downstream research at IHS Markit, said.

"The two industries are vastly unprepared," Sandeep Sayal, senior director of refining and marketing research at IHS Markit, said.

"Neither has made the necessary investments for compliance, which means that the 2020 implementation date will result in a scramble. Both industries are taking a wait-and-see approach until firm signals are in place by the IMO for compliance with the regulation," Sayal added.

Shippers will have several options to meet the new IMO regulations, IHS Markit said. Low-sulfur bunker fuels, primarily for smaller vessels, and liquefied natural gas (LNG), primarily for new builds, will be part of the solution.

However, IHS Markit researchers expect that on-board ship scrubbers, devices that clear harmful pollutants from exhaust gas, will be the primary compliance path for ships, which could continue to burn higher-sulfur fuels.

As ship owners respond to the large-scrubber investment incentives, high-sulfur bunker fuel demand will rebound, although not to prior 2020 levels. Due to increasing demand and addition of debottlenecking capacity for residue conversion, IHS Markit estimates price spreads will moderate within a few years, "but the timing of price recovery will be dependent upon a number of variables."

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