In 2016, the International Maritime Organization (IMO) decided to strictly enforce the use of bunker fuels with sulphur content not more than 0.5% mass by mass (m/m) globally from 1 January 2020, from the existing 3.5% limit for ships.

IMO 2020 compliance

IMO 2020 regulation is proving to be a major challenge for the global refinery industry, as the refineries do not have sufficient production capacity to meet IMO-compliant bunker fuel demand in 2020.

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A study, submitted by CE Delft, had concluded that there would be sufficient availability of low sulphur bunker fuel by the beginning of 2020. However, the Delft study received strong opposition from several quarters. Oil and gas majors such as Shell and BP and independent organisations such as the International Energy Agency (IEA) have projected varying daily bunker fuel demand for 2020, which have been at variance with CE Delft’s study.

Figure: Daily bunker fuel demand projections in 2020

Source: Skandinaviska Enskilda Banken AB. Note: 2020 demand is normalized to 5.5 million barrels per day (mmbd)

The implementation of IMO 2020 could lead to disappearing of substantial quantities of high sulphur fuel oil (HSFO) used by the shipping industry currently. The surge in ultra-low sulphur fuel oil (ULSFO) demand may put pressure on the refineries to increase capacity utilisation of coker, residue fluid catalytic cracker and hydrocracker units. On the other hand, reduction in demand of HSFO could affect their revenues.

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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 changing their existing refinery configurations for increasing production of IMO 2020-compliant fuels.

Also, the new refining capacities, which are expected to come online primarily in Asia and the Middle East, are well positioned to process high-sulphur fuels into IMO 2020 compliant fuels. Some of the global oil majors are putting efforts to produce blended ULSFO 0.5% through extracting low-sulphur fuel oil streams blended in HSFO.

The IMO 2020 regulation is proving to be a major disruptive change for the global refining industry. As the IMO 2020 regulation shifts demand towards low-sulphur fuels, they, however, might struggle to bridge the gap between demand and supply in the near future.