Smooth sailing or rough seas? IMO to cap sulphur in 2020

The forthcoming change in IMO regulations on the quality of marine bunker fuel impacts the mix of fuel types consumed by the shipping sector in 2020. The IMO Marine Environment Protection Committee met again in July 2017 (MEPC 71), but many uncertainties surrounding the implementation path for the legislation remain. This insight summarises our latest view, providing an update on the article published in early 2017. Our base-case assumptions on compliance, scrubber penetration and ULSFO availability remain largely unchanged. The insight provides our latest forecasts for bunker fuel prices and crude differentials consistent with our H1 2017 Brent price forecast and global refined product imbalances. We have added a forecast for the ULSFO crack spread in this latest edition. And we also provide new commentary on the risk of established bunkering hubs losing market share as the IMO regulations have implications for relative regional marine fuel pricing and supply.

This report analyses the impact of the IMO's decision to reduce the global limit on sulphur in marine fuels from 2020, which has the potential to be hugely disruptive to the shipping and oil product markets. The study analyses the different compliance options available for shippers. It provides Wood Mackenzie's forecast for the impact on oil product demand, crude and product pricing, and refining margins, with clear explanations of the assumptions made. The implications of an alternative full-compliance scenario are also described. The report provides a basis for refiners, shippers, crude producers, bunkering operators, investors and regulators to identify the implications of the legislation and the uncertainties it creates. The study is based on our detailed asset-level refinery modelling, economic forecasting and cross-fuel analysis. It draws upon the expertise of a global team of analysts who have conducted many conversations with market participants on this topic in recent years.

The change in IMO regulations on the quality of marine bunker fuel impacts the mix of fuel types consumed by the shipping sector in 2020. This insight summarises our latest view on the impact of this change, providing an update on the article published in August 2017. We have made a downward revision to our scrubber penetration rate in 2020, although we still expect a ramp up in the number of scrubbers installed post-2020, particularly in the new build market. Our base-case outlook also assumes higher compliance and higher availability of ULSFO in 2020, although many uncertainties remain surrounding the implementation path for the global sulphur cap. The insight provides our latest forecasts for bunker fuel prices and crude differentials consistent with our H2 2017 Brent price forecast and global refined product imbalances. We also present further work in relation to the pricing and availability of ULSFO, assessing supply from pure ULSFO streams as well as blending with VGO.