May 16, 2019 / 4:25 AM / 2 months ago

Coming marine fuel standard will disrupt markets for 1-5 years - BCG study

FILE PHOTO: Vessels pass an oil refinery in the waters off the southern coast of Singapore, February 26, 2016. REUTERS/Edgar Su

HOUSTON (Reuters) - The marine industry’s January 2020 shift to using very low sulphur fuel oil (VLSFO) to power ships worldwide will launch a one- to five-year disruption in oil and refined products markets, according to a study released Thursday by Boston Consulting Group.

The International Maritime Organization (IMO)’s mandated switch will require fuels to have a sulphur content below 0.5%, compared with 3.5% now. It aims to improve human health by reducing air pollution from sea-going vessels.

The changeover may increase profits for refiners, especially on the U.S. Gulf Coast, where plants are designed to process high-sulphur crudes. It could also benefit producers of shale oil, which has a lower sulphur content than other varieties, the study found.

Conversely, prices for high-sulphur fuel oil (HSFO) or bunker fuel, with a maximum sulphur content of 3.5%, will fall as demand erodes, according to the study.

“The effects will be more than made up for by higher market prices for VLSFO and middle distillates, leaving most refiners, particularly complex refiners on the U.S. Gulf Coast, with substantially higher margins than they had before the disruption,” it said.

Prices for crude oil from shale fields will benefit from the transition, the study said, and “command a rising price premium, due to a sulphur concentration that is lower than that of oil from other sources.”

The shortest period for the transition would be one year if the IMO, a United Nations body regulating the shipping industry, were to postpone the start to 2022, allowing refiners and shippers more time to prepare for the change, which was first announced in 2016.

The longest period – five years – would be expected if the world economy falls into recession and shippers widely do not comply with the regulation, narrowing the expected price spread between HSFO and VLSFO.

Reporting by Erwin Seba, Editing by Rosalba O'Brien

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