Maritime transport is essential to the world's economy. Over 90% of the world's trade is carried by sea, and it is by far the most cost-effective way to collectively move goods and raw materials around the world. A new IMO (International Maritime Organization) regulation, effective as of 2020, pushes the shipping industry to clean its emissions by installing remediation equipment on board or by limiting the sulphur content of their bunker fuel to 0.5%.
It is the most disruptive change to impact the oil industry in the last 30 years. It affects the majority of global waters and is a fundamental shift in fuel production that moves marine bunker fuel from by-product status to an on-purpose, on-specification fuel. The shipping, bunkering, and refining industries are all interlinked with respect to the IMO's decision which presents challenges and opportunities for the oil refining industry that KBC can help with.
Burden of compliance falls on oil refiners
The shipping industry today is over capacity and operating with historically low margins and freight rates. In addition, they are facing a complex array of other regulatory issues, such as ballast water controls, future CO2 emissions targets, mandatory stack monitoring and insurability. Shippers are convinced that scrubbers along with the sludge retention and disposal are only affordable to a few, and so they expect compliant fuels to be made available by refiners.
This moves the burden of compliance to the refiners, which to some is a welcome market opportunity and to others is a challenge to their survival.
Refiners need to assess their options and plan their actions now; failure to do so may be fatal
The IMO 2020 regulation will create opportunities for some refineries, and challenges for others, and consequently the appropriate response is not obvious. For a particular refinery, it will depend on:
- The location of the refinery
- The crude oil grades used as the refinery feedstock, their availability and future prices
- The complexity of the refinery and in particular availability of residue destruction, residue upgrading, and sulphur removal capacity
- The availability of compatible and economic blending components and access to the new bunkering locations
Refiners are mostly unprepared for this challenge. They are battling many other issues including crude oil pricing, demand balances, new competition from the Middle East and Asia, ever-changing political fault lines and the potential for carbon taxation. The extent to which they need to respond has not been clear and they are wrestling with the impact this will have on their profitability.
KBC's assessment is that the picture is now clear. Refiners need to act now if they expect to realistically respond by 2020. Failure to do so may be fatal to some.
KBC's IMO 2020 Action Plan Workshop
To help refiners, KBC offers a 1-day on-site IMO 2020 Action Plan Workshop which will analyze a refinery's unique situation and provide a clear action plan outlining the potential operational changes and capital investments that should be made to remain competitive.
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