On-Road Diesel Supplies, Prices to Be Affected by Marine Sulfur Rule

ALEXANDRIA, VA. – A mandate to reduce the sulfur content of marine fuel will influence supplies and prices of on-road diesel fuel and gasoline, although the impacts should be temporary, a new literature review published today by the Fuels Institute indicates. The review aggregates and summarizes more than 30 reports evaluating the impact of the International Maritime Organization’s (IMO) rule, known as IMO2020.

Effective January 1, 2020, the sulfur in fuel used by ocean-going vessels must drop from 3.5% mass/mass (35,000 parts per million) to 0.5% mass/mass (5,000 ppm). For comparison, ultra-low sulfur diesel (ULSD) has a limit of 15 ppm of sulfur. The rule is expected to temporarily affect the production and distribution of many refined products, including gasoline and ULSD, according to the reports reviewed. Projected impacts range from a possible price increase of 25 cents to 75 cents per gallon.

“Fuels Institute Literature Review Summary–IMO 2020: International Maritime Organization’s 2020 Sulfur Reduction Rule,” reviews the rule’s impact on the composition and demand for marine fuel, refinery operations and capacity, price and demand for crude oil and refined petroleum products, as well as projected compliance strategies.

“Most reports estimate that full compliance with IMO2020 would require an additional three to four million barrels per day of low-sulfur fuel to power those ships,” said John Eichberger, executive director of the Fuels Institute. “Some have predicted that this additional draw on the distillate market will have enormous price impacts to crude oil and refined petroleum products and will result in worldwide shortages. Others, however, suggest that price and global supply could spike but then quickly rebound and rebalance within a few years.”

Currently, marine fuel is largely made up of residual fuel oil not suitable for the rest of the transportation industry because of its high sulfur content, among other things. When the IMO 2020 rule takes effect, it undoubtedly will strain distillate market production and demand, meaning vehicle fuels like diesel and gasoline will likely become more expensive. Many experts agree, however, that the impact is likely to be limited to fewer than three years.

Overall, the consensus is that while enforcing the rule will be challenging, compliance rates likely will be high. The expectation is that global refineries will be able to produce enough low-sulfur fuel to supply both the marine fuel market and the vehicle and jet fuel markets, while crude supplies and distribution of refined products could experience some global shifting. Price impacts to gasoline and diesel are expected to range from about 25 cents to 75 cents, with the impact limited to a two-to-three-year window.

Alternatively, installing scrubbers on vessels to permit the continued use of high-sulfur fuel is expected to play a limited role, with predictions ranging from 3% to 15% of vessels being so equipped by 2020. During the first few years of the rule’s implementation, converting to liquified natural gas is not expected to play much of a role.

“Headlines do not always tell the whole story, and IMO2020 headlines have varied from the alarmist to the blasé,” Eichberger said. “That is why the Fuels Institute undertook this literature review. By assessing the analyses from leading experts in the market, we’re providing a more even-keel, objective overview of the potential market implications of the rule. Bottom line is it will most certainly have an impact on the market, but the consensus is that the market will evolve, and IMO2020 will unlikely deliver a crippling blow.”

The literature review can be downloaded at  www.fuelsinstitute.org/research.