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IMO 2020 Sulphur cap - oil refiners step up to the plate

Our research shows that shippers mostly cannot afford the investments to reduce their sulphur emissions even though they want to reduce their Sulphur Shadow; most consumers are not willing to pay the price; and oil refiners are taking on the capital and operational burden of making the new fuels demanded, at minimum cost.

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Whitepaper summary

We have been assisting oil refiners to re-optimize their operations and assets in face of the upcoming IMO (International Maritime Organization) 2020 regulation which has been described as the most disruptive change to impact the oil industry in the last 30 years. This regulation requires the shipping industry to clean up its sulphur gas emissions either by installing remediation equipment on board or by limiting the sulphur content of their bunker fuel that produces the sulphur gases to 0.5 per cent (from a current level of 3.5%)

Enforcement of this regulation will have profound implications for the economics of shipping. Compliant low sulphur fuel oil is currently about 50 per cent more costly than existing higher sulphur bunker fuel sources. With the regulation due to become effective as soon as 2020, low sulphur fuel oil will likely become even more expensive. And, in a recent study commissioned by KBC, it is apparent that consumers are mostly unwilling to pay the price of further reducing their personal Sulphur Shadow (the amount of sulphur emissions they are responsible for) if it increases the cost of imported goods and transportation fuels.

KBC’s assessment, and the assessment of most knowledgeable observers, is that most ship owners will not (or cannot) invest in on-board scrubbers or exhaust gas cleaning systems to continue using high sulphur fuel oil, so will opt to switch to expensive low sulphur fuel instead.

Therefore the burden of compliance has fallen on the refiners. Many have already started their investments but some are yet to decide on the best course of action. And while capital expenditure started today may not result in new refinery processes coming on-stream by 2020, it is not too late to act. Sensible short term actions can be taken now so that viable investments with a later start-up date can still be made. Our dealings with oil refiners tells us they are up for the challenge.

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