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A FINANCIER’S TAKE ON SHIPPING’S POST-2020 REALITIES
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n a new report, leading investment house Goldman Sachs takes a hard look at the maritime industry’s 2020 issues and offers its business analysis in a 46-page document entitled “Global Shipping’s Blue-sky Moment”. After discussions with the ship-owning and oil refining sectors, the investment house concludes that key uncertainties emanate from compliance and enforcement issues surrounding the global sulfur cap.
OVERVIEW
The IMO Sulfur cap comes into force at the beginning of 2020, which will limit marine fuel sulfur emissions to 0.5 percent from 3.5 percent. Ship owners have a variety of options to comply with IMO 2020 regulation. Compliance and enforcement with this regulation is the key uncertainty; upcoming IMO meetings in October could improve the visibility. Discussions with refining/shipping industry participants suggests shipping companies are initially more likely to opt for a fuel switch from HSFO to low sulfur products versus more capex-intensive solutions (e.g., scrubbers, LNG based ships). Over the medium 24 | SURVEYOR | 2018 VOLUME 3
term, scrubber uptake could increase with widening price spreads between high and low sulfur fuels. These changes could have significant implications for land transport fuel prices and shipping freight. In a full compliance scenario, the report estimates the total impact to consumer wallets in 2020 could be around US$240 billion, which may largely transfer to the pockets of refiners. Over the next five years, this could potentially create opportunities for scrubber manufacturers (a new revenue pool of US$15 billion) and hydrogen producers, while the revenue pool may shrink for heavy crude oil producers. Full compliance could be a game changer for the refining industry. For many decades, refineries have been cutting sulfur content from oil products by adding more deep processing (secondary) units to destroy HSFO. While additional refining capacity will come onstream before IMO 2020 kicks in, it is simply not enough to destroy all HSFO if IMO 2020 regulations are fully implemented. Complex refinery projects typically take 4-5 years from final investment decision (FID) to commercial
