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Oil refiners need to act now to be ready for 2020, says KBC

Aug 15, 2017

KBC, the leading technology-based consulting company for the energy and chemical industry, has warned oil refiners that they need to act now to be ready for the IMO’s 2020 low sulphur bunker fuel regulation. A recent survey of refiners across Europe and the Middle East conducted by KBC revealed that over 40 per cent of refiners questioned need to revisit their strategy for 2020 or risk not being ready in time.

The IMO (International Maritime Organization) regulation requires shippers to either clean up emissions or use bunker fuel containing no more than 0.5 wt% sulphur rather than the high current permissible level of 3.5 wt% by 2020. KBC believes the burden of compliance will fall on the refiners as most shippers are unlikely to be able to afford the required emissions abatement investments.

Stephen George, Chief Economist for KBC comments, “For the refiner, the traditional market for high sulphur residues has been marine fuel. This will largely disappear on January 1st 2020. The consequent collapse in high sulphur fuel oil price and refinery margins require refineries to react now or risk going out of business. Shippers (and the bunker providers who provision the fuel at terminals) are relying upon the refining industry to supply the required low sulphur marine fuel and components to the market. The IMO’s decision, while being good for the environment and our health, is pushing the refining industry to make difficult decisions within a very short timeframe.

“With just over two years until IMO 2020 ‘go live’, time is tight for refiners that haven’t already determined their strategy, especially if major investment decisions on structural changes are needed. Refiners should not back away from investment even if they are late, but may now need to accept that a period of lower profitability may be required to carry them through the unchartered territory of 2020 until their investments are implemented,” George continues.

KBC has pointed out that there is not a “one size fits all” strategy that can be adopted. Refiners should assess scenarios specific to their geographic location, their access to feedstocks and alternative product markets, and their current asset configuration.

“There is still time for refiners to analyze their specific situation and asset mix to determine their best course of action but this should be done urgently. How the refinery responds now may make the difference in operations in 2020. They should analyze their options rigorously using rich and accurate modeling technologies, and not rely on simple linear planning models, in order to properly understand their risks and opportunities. This will give the refiner the optimum answer as to how they should respond, specific to their own unique situation, to remain competitive. Short-cuts here could prove fatal later”, concludes George.

Read more about how to respond to IMO 2020.

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