Why U.S. Oil Refiners Will Benefit From IMO 2020 In 2019

Jul. 29, 2019 6:24 PM ETVLO11 Comments


  • Ship Implementation Plan is required for IMO 2020 compliance.
  • Tank cleaning and fuel oil changeover are complex activities.
  • Ship owners turn tanks in 3Q and 4Q 2019.
  • Complex refiners such as Valero will begin to benefit in 2019.
  • This idea was discussed in more depth with members of my private investing community, Boslego Risk Services. Start your free trial today »

Source: International Maritime Organization.

From January 1, 2020, the International Maritime Organization (IMO) will limit the sulfur in fuel oil used on board ships operating outside designated emission control areas to 0.50% m/m (mass by mass), from 3.50% m/m. Of total global air emissions, shipping accounts for 9 percent of the sulfur oxides.

The IMO 2020 goes into effect January 1, 2020. However, shipping lines cannot wait until that date to become compliant. The change-over from one fuel type to another is complicated, and the IMO has prepared guidance for creating a Ship Implementation Plan (SIP). It's not just a matter of pulling up to a pump on New Year's Eve to load up compliant fuel.

The IMO recommends that the SIP cover the following areas:

1. Risk assessment and mitigation plan (impact of new fuels).

2. Fuel oil system modifications and tank cleaning (if needed).

3. Fuel oil capacity and segregation capability.

4. Procurement of compliant fuel.

5. Fuel oil changeover plan (conventional residual fuel oils to 0.50% sulfur compliant fuel oil).

6. Documentation and reporting.

Tank cleaning and potential inconsistencies in low sulfur bunker fuel blends necessitated the changeover process to begin in 2019. And so refiners will begin realizing the benefits of IMO 2020 in the third and fourth quarters of 2019.

Tank Cleaning

The second item, tank cleaning, could take six months or more. The 3.5% bunker fuel that ships typically use tends to stick to the sides of fuel tanks and pipelines forming layers of sludge and sediments.

The layers of sludge may contaminate the compliant fuel, rendering its sulfur level above the 0.5% requirement. The storage system must be completely cleaned out, either manually or with chemical additives.

The tanks and system can be cleaned manually in dry-docking. Compliant fuels can then be loaded

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This article was written by

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Energy futures model portfolio and market analysis from an oil expert.
Seeking Alpha Marketplace Premium Service: Boslego Risk Services.

Managing Director, Boslego Risk Services

Harvard College, Economics (Honors), BA

Undergraduate thesis: "OPEC Pricing Strategy."

Harvard Business School Case Study: "Industrialized World and Oil."

Stanford University Graduate School of Business, MBA

I founded Boslego Risk Services and became a recognized expert in the area of energy price risk management (hedging) and trading, providing oil and natural gas hedging strategies to major oil companies such as Exxon, Shell, Mobil, Chevron, Texaco and Phillips; to the national oil companies of Norway, Venezuela, Mexico, Canada, France and Italy; to major users of energy products, such as Delta Airlines, United Airlines, Burlington-Northern Railroad, and Canadian Pacific Railway.

I also provided frequent market assessments and recommended trading positions to major trading firms, such as Enron, Phibro, Sempra and Vitol, and to large hedge funds.

As the recognized expert in energy hedging, I was selected by the former president, John Treat, of the New York Mercantile Exchange (NYMEX) to write the chapter on hedging in his book, Energy Futures (1990, 2000).

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