Local refineries to pay a hefty price on execution of IMO 2020

March 14, 2019 (MLN): The present-day World is touching dangerous levels of environmental pollution at an alarming pace while the air we breathe is persistently becoming saturated with byproducts of human activity all around the globe.

In its consistent attempt to curb further environmental damage, International Maritime Organization (IMO) has decided that from January 1, 2020, the limit for Sulphur in fuel oil used in board ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass) from the existing 3.5%

“This will significantly reduce the amount of Sulphur oxides emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts,” says IMO on its official web page.

However, while this is a healthy step in right direction, Pakistan’s local refineries are positioned for challenging times ahead, as a consequence of these new emission standards.

It is pertinent to mention here that Pakistan’s local refineries produce High Sulphur Furnace Oil (HSFO) containing around 3.5% Sulphur content and Low Sulphur Furnace Oil (LSFO) containing around 1% Sulphur content, both beyond the newly prescribed standards.

Once the new standards are enforced, the demand for HSFO and LSFO is expected to fall by over 75%. According to a research note published by JS Global Capital Limited, the global marine sector currently consumes around 4 million bpd of HSFO and LSFO, but according to market forecasts, nearly 3 million bpd of this demand could evaporate overnight once IMO 2020 Sulphur fuel cap of 0.5% comes into effect.

25% of total production of these local refineries consists of furnace oil which is also exported during winter season. However, once this scenario come into play, it will be difficult to find international buyers as well.

Mr. Arsalan Ahmed at JS Global pointed out that the “Local refineries are already facing numerous problems, including Ministry of Energy imposing ban on use of manganese content in Motor Gasoline from April 2019 which will limit the benefits of isomerization plants and government’s decision to rely more heavily on gas-based power production that would result in significantly slower off-takes of FO.”

“In addition to this, Kuwait Petroleum Company (KPC) –Pakistan’s largest fuel supplier has demanded phasing out of low quality high-speed diesel —Euro-II —by Dec 2020.This is because KPC would shift to production of Euro-V diesel. In this context, domestic refineries would eventually have to make another round of significant investments in upgrades to meet the new standards, “he wrote in his note.

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Posted on: 2019-03-14T14:56:00+05:00