The International Maritime Organization (IMO) has led to a rapid transformation in the shipping industry, with a significant drop in fuel oil compared to the previous (maximum 3.5%) with its application to the maximum sulfur content of 0.5%. The regulation, effective from January 2020, has taken a precautionary task to reduce sulfur oxides (SOx) and particulate matter emissions from ships. This arrangement may seem to affect only the maritime industry, but it is important to remember that HSFO has a potential secondary effect in terrestrial activities, where it is still widely used in electricity generation. For this reason, mining companies with their own electricity generation facilities cannot be expected to be excluded.
Ship owners have three options to comply with the rules. The first is to switch to Marine Gas Oil (MGO) or Very Low Sulfur Fuel Oil (VLSFO) with a sulfur content of less than 0.5%. Secondly, investing in the scrubber system known as the exhaust gas cleaning system (EGCS). Ships equipped with this scrubber can continue to use High Sulfur Fuel Oil (HSFO), in the case their exhaust gas emissions do not exceed the equivalent of 0.5% sulfur fuel combustion. The third option is to use Liquefied Natural Gas (LNG), a fuel that does not contain sulfur and therefore does not emit sulfur oxide.
Since some users, including miners, are not limited to the sulfur issue, it can be assumed that such companies can continue their operations normally using HSFO. However, it is beneficial for such users to be careful about the current conditions for four main reasons and to be prepared for some arrangements related to them.
First, this regulation has led to a serious change in the need for Heavy Fuel Oil (HFO) globally because more than 50% of global HFO production is used as bunker, marine fuel. Refineries now need to be revised according to current regulations. From now on, a low sulfur fraction from crude oil will be used for the production of the new 0.5% VLSFO. Old high sulfur parts used in the production of HSFO will need to be further refined to meet this new specification. However, it is limited to many refinery designs, the demand and supply balance suddenly changed. Refineries will have to undergo revisions that can produce themselves new fuel with new investments. As suppliers try to deal with plenty of high-sulfur hydrocarbon cuts, 3.5% S HSFO prices are falling. At the same time, the new 0.5% S VLSFO has a price closer to the diesel than HSFO. In summary, the main pricing parameter for HFO for the near term has been indexed to the sulfur content of the fuel. However, the prices should not mislead us, due to the reasons mentioned above, they will be obtained by the primitive method over time, and it is clear which direction the price of a product whose demand falls will be.
Secondly, shipping freight costs are affected. Because the fuel cost is higher for 0.5% VLSFO. Or ship owners invest in scrubbers (flue gas scrubbers) or other new fuel strategies that further increase costs. These cost elements will be reflected on the product as the transportation item in the transportation and supply of the HSFO used in land services.
The third is the impact of HSFO on its quality. Currently, the market average sulfur content for HSFO is around 2.6% S, which is within the maximum 3.5% S specification. This will increase as refineries separate crude oil and remove the low-sulfur fraction from high-sulfur fuel cuts. This will affect the use and maintenance of machines that consume HSFO. For example, higher TBN engine oils may be needed to counteract the formation of sulfuric acid during the combustion of HSFO.
Finally, regarding the country’s internal regulations, the global trend in the passenger car and transportation industry has been to significantly reduce the sulfur content of fuels. The same trend has now been adopted by IMO for the maritime industry. Therefore, country regulations are expected to become more sensitive and rigid regarding the land use of HSFO.
In general, there is a rapidly changing landscape for environmental responsibility. Solid sulfur content regulations on sea fuel may be a catalyst that causes industries to move towards a greener world. There is currently a driving force for internal, terrestrial users. The future is bright for 0.5% VLSFO and cleaner alternative fuels.
