Ocean ship fuel regulations to create price uncertainty in crude oil, petroleum products

by Talk Business & Politics staff (staff2@talkbusiness.net) 64 views 

International regulations that limit sulfur in fuels for ocean vessels look to increase uncertainty in prices for crude oil and petroleum products for the short and long term, according to the U.S. Energy Information Administration. The regulations are set to take effect in January 2020.

Sulfur in marine fuel produces sulfur dioxide, a precursor to acid rain, and the sulfur content in transportation fuels has been falling for years because of stricter regulations set by countries or groups of countries. In the United States, regulations limit the amount of sulfur in motor gasoline, diesel fuel and heating oil.

The 2020 regulations will apply to fuels used in the ocean in multiple countries’ jurisdictions, representing the largest portion of the nearly 3.9 million barrel per day global marine fuel market, according to the International Energy Agency. The International Martine Organization, a 171-member state United Nations agency that sets shipping standards, will reduce the maximum amount of sulfur content by percent weight in marine fuels used in the ocean from 3.5% to 0.5% by 2020. The regulations are expected to reduce sulfur dioxide, nitrogen oxides and other pollution from ocean vessel exhaust.

To comply with the regulations, vessel operators can use lower-sulfur fuel, scrubbers or nonpetroleum-based fuels. Residual oil, commonly known as bunker fuel, is the primary component of marine fuels in use currently. Residual oil is a hydrocarbon that remains after hydrocarbons, such as gasoline and diesel, have been separated from crude oil. Removing sulfur from residual oil or upgrading it to gasoline and diesel can be an expensive and a capital-intensive process.

Refineries might look to offer more low-sulfur distillate fuel in the bunker fuel market, and this would mean ocean vessels would compete with trucks, heavy equipment, trains and planes for supplies of distillate fuels at a time when distillate demand is high. Refineries also could process crude oils that are lower in sulfur, leading to a rise in distillates and a decline in bunker fuel. Both options would increase crude oil demand.