As we enter into the new year, the most impactful subject for the worldwide refining industry is the implementation of the decision of International Maritime Organization to reduce the sulphur cap on marine fuels from 1 January 2020, from the existing 3.5% to 0.5%.
The implementation of this regulation is expected to create major changes in the refining market. One of the most anticipated changes is that the complex and flexible refineries in the Middle East may flourish and make better profit margins. The implementation of the decision gives refiners an opportunity to position themselves on the profitable side of a major shift taking place in the market.
For example, ADNOC is well-positioned to benefit from the IMO 2020 sulphur regulations, as the company has complex refining facilities that can process cheaper heavy crude, while maximising output of distillates.
It is worth mentioning here the statement of Abdulaziz Abdulla Alhajri, director, Downstream Directorate, ADNOC, during an interview given to Refining & Petrochemicals Middle East in October 2018: “The Carbon Black and Delayed Coker Project announced in Q3-2018 will strengthen our ability to market and sell marine fuels, following the International Marine Organization’s decision to reduce the sulphur content in marine fuels to 0.5% by 2020. Our CFP (Crude Flexibility Project) will be able to process heavy crude to produce high-value products. ADNOC will produce zero sulphur content bunker fuels by 2020.”
On the other hand, it is a fact that all the refineries in the Middle East are not complex. The IMO regulation will have a negative impact on the profits of refineries producing high sulphur fuel oil (HSFO) as its price will definitely drop since it is non-compliant with the IMO sulphur cap. There are many refineries with high HSFO production and low desulphurisation capacity in the Middle East. These refineries will clearly suffer in margins because of the IMO regulation.
The IMO regulation forces a significant investment on refiners. By integrating deep conversion processes into their asset configuration, refiners are adopting the most suitable strategies to minimise high HSFO production. As a result, the IMO sulphur cap is going to trigger major investments into the refining business.
As forecasted by many experts, the period from 2020 to 2025 is likely to witness some turbulence with potential volatility in terms of margins for refiners.
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