The graph above shows U.S. Gulf Coast Ultra-Low Sulfur Diesel (ULSD) Spot Prices. U.S. ULSD spot prices are used as a proxy to track transportation costs increases prior to and following the implementation of IMO 20202. While the costs of compliant fuels in marine vessels vary based on loading port/region, the actual fuel used (MGO, LNG, HSFO, LSFO, etc.) and several other factors, this graph can be used to give an estimate on the transportation market pressure. IMO 2020 effects are not isolated from other market factors.
Shipowners and refiners have been working to formulate strategies to lessen the overall impact of IMO 2020 and to reduce the original predictions of widespread price hikes and limited supply. Most sources expect the market to readjust by 2025.
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The aim of IMO 2020 is to curb pollution created by an estimated 60,000 vessels in the world’s shipping fleet. According to the UK’s Guardian newspaper, one large shipping vessel can emit more pollution than 50 million cars, and the 15 largest vessels emit more nitrogen oxide and sulfur oxide than all of the world’s cars combined. Reducing the sulfur levels in fuels will greatly reduce sulfur oxide emissions from ships.
Compliance and enforcement of the new regulations will fall to governments and the national authorities of member states. Should ship owners fail to comply, they could be fined or have their vessels seized. Announced fines have varied from $10,000/$20,000 to $7.5 million per offense. The lack of a set standard or ability to police vessels at sea will incentivize some companies to use non-compliant fuels.
Ergon is a purpose-built lubes refiner, committed to a long-term investment strategy which allows us to ensure a strong, reliable supply and lessens our susceptibility to market impacts. We have continuously expanded our naphthenic refinery, which currently has a capacity of 25,000 bpd, and our paraffinic refinery, which has a capacity of 23,500 bpd.
As the world’s largest naphthenic producer, second largest bright stock producer, and fourth largest base oil manufacturer in North America, Ergon is committed to meeting your needs for solvency and viscosity, both now and in the future.
Come & talk to us about how the new IMO regulations are affecting the market in your region.