Global Regulatory Change for the Marine Fuel Market
Today’s ships traverse the world’s oceans using two main types of fuels: residual based fuel and distillate fuel. Most ship engines are optimized for residual based fuel, with a sulfur content of up to 3.5% prior to IMO 2020 which contributed significantly to global pollution.
In October 2016, the United Nations’ International Maritime Organization (IMO) implemented a sulfur cap on global marine fuels from 3.5% to 0.5%, effective January 1, 2020.
As a result, there has been a major shift in demand for marine fuels with pre-IMO 2020 expected shifts presented below:
Distillate fuel oil demand for Marine Gasoil (MGO), Marine Diesel Oil (MDO), and Diesel will increase 8%, which would be the largest jump to date for this fuel and is expected to disrupt the market for other distillates such as ULSD.
High Sulfur Fuel Oil (HSFO) supply will drop by 50%, stranding a vast amount of high sulfur residual materials.
Unless HSFO components can be re-purposed, the net impact will be a drop-in supply by approximately 1.7 million barrels per day (MMbpd). What would happen to the crude market if OPEC suddenly cuts 1.7 MMbpd of production?
Challenges and Existing Options
IMO 2020 introduces two distinct problems for the maritime industry. First, excess HSFO will no longer be usable, posing a potential disposal crisis. Second, ships will be short of compliant fuel. The maritime industry has three viable options to solve these issues:
Option one is to use existing distillates (MGO and diesel), but it is far more expensive than residual based fuels. A distillate solution increases global “on water” diesel consumption by three to four times. Distillate fuel also creates more wear and tear on marine engines, which may cause higher maintenance and more risk of failures.
Option two is a mixture of distillates and other products. This option would still typically incorporate at least 80% distillate content and be costly to ship owners. There has yet to be consistent parameters to measure this option and there will likely be fuel stability and compatibility issues from port to port.
Option three is a scrubber, which removes sulfur oxides from a ship’s engine. The global fleet comprises over 55,000 ships, and each one would have to purchase a commercial scrubber. By January 1, 2020, the industry expects only several thousand ships to have a scrubber. It would take about 15 years to retrofit them all with these units. Disposal of the scrubbed “sludge” (a hazardous material) would still be an issue. Some countries have already banned the use of scrubbers with many more considering this ban on open loop scrubbers in sovereign waters due to pollutants from the scrubber “sludge” being discharged directly into ocean water.
Solutions for IMO 2020
IMO 2020 has created a large gap in the marine fuels market. Rigby Refining LLC has developed a patented process that is the best solution for ship owners and the industry to comply with IMO 2020. The patented Rigby Fuel (VLSFO) is completely compliant and minimizes negative impacts to ship engines that occur from switching fuels. It also prevents the requirement for expensive modifications and operator changes while still enhancing performance and efficiency for all ships.
Get in Touch
Contact the Rigby Team to discuss various opportunities with Rigby Refining LLC. We will answer your questions and provide the information you need to understand all the benefits, options and opportunities that exist with Rigby Refining LLC. We look forward to working together with you on these exciting opportunities.