A Major Shipping Change Is Coming, and So Are Higher Fuel Prices

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This is *not* new news, but it is a nicely penned, non-technical summary of the impending changes to the oil used by the global shipping industry.

A Major Shipping Change Is Coming, and So Are Higher Fuel Prices

A defining moment in the history of the oil-refining and shipping industries is at hand.

In fewer than two weeks, thousands of ships the world over will be forced to use fuel containing less sulfur in order to comply with global rules set out by the International Maritime Organization. Those who don’t could face penalties and even imprisonment. Ports are deploying drones to — literally — sniff out wrongdoers. The regulations are having a profound effect on oil refineries and the cost of seaborne trade looks set to rise.

What’s the big deal? For decades, shipping has been the oil market’s dumping ground for a pollutant blamed on aggravating human health conditions including asthma and causing acid rain. That’s because refineries have struggled to eradicate it when turning crude into fuels. Even so, when the regulations were mandated back in October 2016, they came as a shock to many observers who had expected a later start date. While a panic about getting ready has subsided, there’s clearly still work to do — as a slump in the price of non-compliant fuel demonstrates.

“IMO 2020 is the most fundamental and dramatic product specification change the oil industry has experienced, with an impact on both shipping and refining,” said Torbjorn Tornqvist, the chief executive officer of Gunvor Group, one of the world’s largest oil and gas traders. “It has the potential to change every product and crude differential out there.”

The cost of shipping a twenty-foot box-load of goods from Latin America to Europe could rise by $26, according to IHS Markit, a consultancy. A week-long ship cruise could go up by $130 per cabin, the firm estimates. Add 5 cents onto a crate of bananas.   ...

 

... Full enforcement may happen more slowly than the IMO and some in the shipping and refining industries would like. There’s a big financial incentive to cheat, and an opportunity to do so on selected trades.

Barring any obvious safety concerns though, the overriding view of analysts is that there should nonetheless be substantial compliance.

That means less airborne pollution and be a positive for those companies that invested in conforming.

“There’s almost certainly never been a simultaneous global specification change in the oil industry,” said Spencer Welch, oil markets and downstream director at IHS Markit. “For the whole world to change specification of a product on the same day is almost unheard of.”

 

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1 hour ago, Tom Kirkman said:

... Full enforcement may happen more slowly than the IMO and some in the shipping and refining industries would like. There’s a big financial incentive to cheat, and an opportunity to do so on selected trades.

My guess is that Nigerian non-compliant fuels will be sold in local ports. 

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On 12/26/2019 at 4:57 PM, Jan van Eck said:

My guess is that Nigerian non-compliant fuels will be sold in local ports. 

Read somewhere that few countries (recall Indonesia) have refused to implement it locally (intra-country trade). Cant find the article now. And given they are supposed to be the regulator - well you get the point. But intra-country water trade is very small globally is my understanding. And yeah, very nice article - explains it very lucidly to even someone with little understanding of O&G.

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