The reality is that many refiners remain unprepared for the International Maritime Organization’s (IMO) MARPOL 73/78 Annex VI (IMO 2020). These regulations, which will substantially tighten the global cap on the maximum sulphur content of marine fuel oil, could have a major impact on an ill-equipped refiner’s profitability. Fortunately, it is not too late; they could implement several low-cost solutions over the next two years to safeguard their competitive position.
Because of these regulations, from 2020, refiners can expect demand for high-sulphur fuel oil (HSFO) to fall, demand for low-sulphur fuel oil (LSFO) to increase and a corresponding price differential between the two to open up. This is because ships will only be able to continue using HSFO if they are fitted with on-board scrubbers, but on-board scrubbers are costly and it will only be possible to convert a modest percentage of the world’s fleet before the new global cap comes into force. Liquefied natural gas conversions are inappropriate for most ships, so most will turn to LSFO from 2020.
Fortunately, the LSFO–HSFO price differential is likely to close partially over time as scrubber technology improves and conversion facilities are built. Consequently, there will still be a market for HSFO and refiners do not necessarily need to eliminate their HSFO exposure, but they would be well advised to reduce it to retain their competitiveness.
How should you respond? There is a wide range of technology options available, but a rigorous evaluation study must be done to find the most cost-effective option for each refinery. Some of these options are shown in Figure 1. Should you install one of the highest-residue-conversion technologies, for example, ebullated-bed residue hydrocracking or slurry-phase residue hydrocracking? For many refiners, these options may not provide the optimum solution, in part because they are extremely capital intensive.