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Russia's heavy fuel oil exports: challenges and changing rules abroad and at home
Marine bunkering had been one of the few remaining areas with robust demand for fuel oil, due to the expansion of maritime trade and growth of shipping turnover. It is now the world’s largest consumer of HFO. However, the International Maritime Organization (IMO) has mandated a stricter sulphur emissions cap (0.5 per cent instead of 3.5 per cent) from January 2020 globally, which is a challenge for shippers. The new rules will force them to choose between switching to compliant fuels (compliant low-sulphur fuel oils and marine gasoil (MGO)), installing scrubbers, or refurbishing their ships for the use of LNG as bunker fuel. The change in bunker fuel specifications might become the most disruptive quality change for the refining and shipping sectors in this century. Most analysis of the IMO requirements taking effect in 2020 suggests a lower demand for HFO and very likely downward price pressure. Russia is going to be faced with the greatest exposure to this new challenge.
The key aim of this paper is to explore whether the Russian refining sector has the flexibility to deal with the problem by lowering HFO output and exports before the mismatch between supply and demand becomes excessive.
