SINGAPORE (Reuters) – New oil refining capacity and an increase in the number of ships adding cleaning systems to their smokestacks will help marine fuel markets find balance once new sulfur regulations kick in, Goldman Sachs said.
To combat air pollution, the United Nations’ shipping agency has set global regulations to cap sulfur content in marine fuel at 0.5 percent from 2020, down from 3.5 percent now.
Ships without sulfur-stripping technologies, or scrubbers, would have to burn costlier low-sulfur fuels such as marine gasoil or low-sulfur fuel oil to comply with the clean air rules.
“We expect scrubber installations to rise quickly, with scrubbed ships keeping a third of current high-sulfur fuel in compliant use,” Goldman said in a note on Thursday.
“Ongoing refinery capacity additions and the redirection of fuel oil and crude flows should go a long way to balancing the global fuel markets, with more onerous utilization and yield shifts making up the difference,” the bank said.
Shippers and refiners were initially slow to make investment decisions to comply with the upcoming sulfur cap due to uncertainty around the enforcement of the rules and costs of compliance.
Goldman forecasts scrubber installations at 3,125 in 2020 and 4,450 in 2022. It expects scrubbed high-sulfur fuel oil (HSFO) consumption at a total of 1 million barrels per day (mbpd) by 2020 and 1.4 mpbd by 2025.
The global shipping industry burned a total of 3.3 million barrels per day (mbpd) of high-sulfur marine fuels in 2017, according to the bank.
Goldman’s forecasts for higher than expected HSFO consumption mirrors similar outlook revisions from other energy researchers in August amid changing attitudes to scrubbers from shippers.
“At an 80 percent compliance rate, we model that the market can reach equilibrium at a distillate-HSFO spread near current forwards, although at higher distillate cracks,” Goldman Sachs said.
“We highlight, however, that this regulation’s costs may end up varying sharply with global growth and oil prices.”
Reporting by Nallur Sethuraman and Vijaykumar Vedala in BENGALURU and Roslan Khasawneh in SINGAPORE; Editing by Tom Hogue and Joseph Radford