Severe economic strain going beyond shipping could develop in the wake of a tighter, global sulfur cap on marine fuel, according to new, shipping and oil industry-sponsored research presented Monday to the Marine Environmental Protection Committee, a committee of the International Maritime Organization.
The research, on the feasibility on 0.5% global sulfur cap, said the refining sector would struggle to meet the resulting new pattern of demand, forcing up bunker fuel prices.
The MEPC is sitting in London this week to decide when that sulfur cap should start -- 2020 or 2025 -- or defer any decision to another meeting.
The official fuel oil availability study commissioned by the MEPC and undertaken by CE Delft answered the refining capacity question in the affirmative. But this supplementary study, sponsored by shipping industry organization BIMCO and oil industry organization IPIECA and undertaken by Ensys/Navigistics, said that the refining capacity was not there.
Both studies agreed that nameplate refining capacity could meet the switch in demand to low sulfur material, the Ensys report found that the reality would be very different.
"There is a big difference [between nameplate refining capacity] and the effective utilization of that capacity," Ensys president Martin Tallet told the MEPC meeting.
Prices would rise as a result with a much a wider differential between inland ultra low sulfur diesel and the key bunker fuel grade, high sulfur 380 CST, ranging up to $380/mt against under $190/mt in different scenarios.
"These are well beyond anything in recent history, including 2008, when distillate became extremely tight," the report said.
The price impact would not be limited to shipping. Price increases "across all products in all regions worldwide" could follow, moving up in an 11-23% range, according to the report.
Both reports were presented to the MEPC Monday. The MEPC is to decide on a date for the sulfur cap this week but could delay to another meeting as the deadline for a decision either way is 2018.
