Executive Summary of LSF 2020

1. Low Sulfur Fuel in 2020 Executive Summary
 The International Maritime Organization (IMO) is implementing new environmental
regulations on the shipping industry. Starting 2020, ships must reduce their sulfur emissions
from 3.5% to 0.5%.
 Prior to deciding, the IMO considered two conflicting reports that projected the
accessibility of low sulfur solutions for 2020.
 It is expected about 80% of the industry will require some form of low sulfur petroleum
fuel (LSF), making its accessibility of highest concern.
 Report Takeaway
 The reports agreed on nearly every projection except for one part of the refinery
analysis.
 To produce sufficient LSF, refineries need to be properly equipped and have sufficient
capacity. A refinery unit of concern is the Hydrodesulfurization (HDS) unit, which
removes sulfur from fuel. Expanding this unit is expensive and takes a few years.
 The reports disagree on if the capacity of this unit will be expanded by 2020:
- CE Delft assumes refineries will automatically expand to meet the demand.
- EnSys/Navigistics claims refineries will be reluctant to expand because of an
unknown future market. They do not want to see their investments abandoned.
 CE Delft claims global compliance will be achieved through interregional trade, with
costs around $616 for LSF (<0.1), $595 for LSF (<0.5), and $466 for HFO ($/ton).
 EnSys/Navigistics claim there will be a global shortage of LSF by 63 MTPA, and costs
will be around $841 for LSF (<0.1), $725 for LSF (<0.5), and $396 for HFO ($/ton).
 The IMO only asked ‘if’ the market is capable of adapting, but did not ask if it ‘will.’
 Implications
 Some of the refinery industry is taking a ‘wait and see’ approach. Some refineries claim
they will meet the demand, whereas others are looking to other markets.
 Ship owners currently using LSF have faced persistent challenges attempting to comply
due to unreliable fuel supply and complications with engine compatibility.
 Compliance with LSF is not guaranteed. Enforcement is currently weak, but the
development of a ‘level playing field’ by 2020 is in progress.