IMO 2020 low sulphur regulation challenges global refinery industry

In 2016, International Maritime Organization (IMO) decided to strictly enforce use of bunker fuels with a sulphur content of 0.5% (mass by mass) from the existing 3.5% limit, from 2020. However, refineries do not have sufficient production capacity to meet bunker fuels demand with less than 0.5% m/m sulphur content, according to GlobalData, a leading data and analytics company.

Over the past few years, oil and gas majors such as Shell and BP, and independent organizations such as International Energy Agency (IEA) have projected varying daily bunker fuel demand for 2020. Shell, BP and IEA indicate that daily High Sulphur Fuel Oil (HSFO) demand could reduce from around 3.3 million barrels per day (mmbd) and fall within the range of 0.3 to 1 mmbd in 2020.

Arpan Roychowdhury, Oil and Gas Analyst at GlobalData, says: “The implementation of IMO 2020 could lead to a disappearing of substantial quantities of HSFO used by the shipping industry. The surge in ultra-low sulphur fuel oil (ULSFO) demand may put pressure on the refineries to increase capacity utilization of coker, residue fluid catalytic cracker and hydrocracker units. On the other hand, reduction in demand of HSFO could affect their revenues.”

Simple refineries, having access to ultra-sweet crude from coasts of West Africa and US shales, can ramp-up their ULSFO production and reduce the supply-demand gap. Many complex refineries, in countries such as China and the US, are also changing their existing refinery configurations for increasing production of IMO 2020 compliant fuels. New refining capacities, which are expected to come online primarily in Asia and the Middle East, are well positioned to process high sulphur fuels in to IMO 2020 compliant fuels.

Roychowdhury concludes: “As the IMO 2020 regulation shifts demand towards low sulphur fuels, they might struggle to bridge the gap between demand and supply in near future.”

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