Turning tides: The future of fuel oil after IMO 2020 (Special Report)
Foreword from Martin Fraenkel, President S&P Global Platts
The use of fuel oil in ships has a history encompassing most of the modern oil era. Warren Platt’s National Petroleum News was in just its fourth year of publication when Winston Churchill instigated the Royal Commission on Oil Fuel and Oil Engines in 1912, sparking off a shift first by the UK’s Royal Navy and subsequently by the global commercial fleet to using oil-based bunker fuels instead of coal.
Just over a century later, another sea-change in marine fuels is under way – prompted this time not by military interests but environmental and health concerns.
The International Maritime Organization’s lowering of the global marine fuels sulfur limit in 2020 poses a formidable set of challenges to the oil industry, with S&P Global Platts Analytics forecasting a shift in bunker demand of more than 3 million b/d. The industry will have to cut excess fuel oil production and increase middle distillate output, all while coping with an upended geographical distribution of bunker demand, changing arbitrage flows and variable degrees of compliance with the regulation across the world.
In time these changes will make their presence felt across almost every commodity market covered by S&P Global Platts.
Our price assessments will of course evolve to reflect the upcoming specification change. We hope our decision to start publishing 0.5% sulfur assessments a year before the IMO’s deadline will help ease the transition to new fuels for both the oil and shipping industries.
But 2020 will not be the end of the road for fuel oil. Some 235 million barrels of physical fuel oil trades are currently carried out in the S&P Global Platts Market on Close process globally every year, and around 18 billion barrels’ worth of fuel oil derivatives related to S&P Global Platts price assessments are traded on exchanges every year; this is not a market that can disappear overnight.