The US surge in wind energy and the shale-boom-driven surge in petrochemical investment are both indicators of powerful trends causing a gradual, permanent evolution in global demand for fossil fuels, particularly oil and gas. Demand for these commodities is always interesting for the project industry, especially demand for oil, both as a driver of project cargo business and as an essential — and volatile — cost of doing business.
The International Energy Agency (IEA) pointed out in a recent commentary that “oil,” itself, is hardly monolithic. While overall consumption has been rising since the early 1900s, demand for heavy fuel oil, that which sinks to the bottom of the barrel, has been declining for almost 40 years, even as demand for lighter products such as ethane and airplane fuel has floated upward.
The IEA predicts that the top-of-the barrel share of total oil consumption will increase from the current 19 percent to 23 percent by 2040, while the share taken up by gasoline and heavy fuel will decline from 33 percent to 28 percent over the same period.
Demand for heavy fuel oil will surely take a hit when IMO 2020, the International Maritime Organization’s (IMO’s) regulation requiring oceangoing vessels to reduce consumption of high-sulfur fuel, is enforced as of Jan. 1, 2020. As things stand, most vessels will comply by consuming low-sulfur fuel, switching to liquefied natural gas (which is expensive and most practical for newbuildings larger than multipurpose vessel/heavy-lift [MPV/HL] vessels) or installing “scrubbers” that will enable them to continue burning high-sulfur fuel.
Shipping, refining slow to transition to low-sulfur rule
The refining and shipping industries have been slow to make the (expensive) investments necessary to comply with IMO 2020. Compliance is the bugaboo, according to IHS Markit, parent company of JOC.com.
After all, who will enforce fuel compliance on the high seas? No one is quite sure. This presents certain temptations. Will compliant fuels be reliably available after the big day? Good question. Some may be betting on marine gasoil (MGO) — a top-of-the barrel fuel that is also expensive, currently available, and used in emissions control areas — but there is bound to be an initial demand spike, which will force many to use new-fangled low-sulfur whether they like it or not. MGO is not a long-term solution.
And then there’s the one question that gives vessel owners and operators nightmares: will low-sulfur bunker fuels available on Jan. 1, 2020, even if compliant, be safe for their ships’ engines? There are many ways that refineries could formulate low-sulfur blends, and incompatible blends purchased by vessels in different ports can cause all manner of trouble.
These are not new issues, but differences in refining styles and blend types for the new low-sulfur fuels appear to pose higher risks for vessels bunkering in different regions and thus mixing fuels. There could be a plague of “bad bunkers” that makes the recent troubles look like the common cold.
Forced to the top of the oil barrel, transitioning to IMO 2020 will not be simple for the MPV/HL fleet, or the project industry that depends on it.