How important is #IMO2020 to the tanker trade today?
At one point it was very important. And I think it will be again.
IMO2020, for those who don’t know, was a limit in the sulphur content of marine fuel. The regulations reduced allowable sulphur content by ~85%. That might not seem like a big deal but it has a big impact on refinery economics. Ships burn residual fuel, meaning what’s left at the bottom of the barrel after the refinery has made gasoline, diesel, jet fuel, etc. For a refinery to make optimal profits they need to be able to sell the stuff left over. The problem is that the type of crude you run determines what your residuals look like. If you run watery shale crude, you don’t have a very high residual yield, but it is low in sulphur. If you run a typical Saudi crude, you get a high residual yield, but it’s too high in sulphur to be burned in ships unless those ships have scrubbers installed — devices that “wash” the sulphur out of the fuel.
There are some crudes that are chemically similar to the medium and heavy crudes (like from Saudi Arabia) but that are naturally low in sulphur. Those crudes are pretty rare, less than 15% of global supply, and back in January were trading for more than a 50% premium over Brent. This was because the vast majority of ships were burning this new low sulphur fuel, and if you started with a heavy or medium sweet crude, you could…
