The Global Patriot, a U.S. cargo ship which was under short term charter to the U.S. Navy's Military Sealift Command, sails in the Suez canal in Ismailia, Egypt, Tuesday March 25, 2008. The Global Patriot fired warning shots at a small Egyptian boat while passing through the Suez Canal, the U.S. military said Tuesday. Egyptian authorities said at least one man was killed, but the U.S. said an investigation was underway and it had no reports of casualties.  (AP Photo)
New rules adopted by the International Maritime Organisation demand the proportion of sulphur in marine ­fuels will have to be reduced to 0.5 per cent by 2020 from 4.5 per cent at present.

Sulphur cuts will have some countries sensing profit



An emerging showdown between the shipping industry and oil refiners over new air-quality regulations could become the straw that breaks the back of the western refining industry. But it may also represent an opportunity for Gulf states looking at new refinery projects worth billions of dollars. Rules adopted last year call for deep cuts in sulphur emissions from ships over the next 11 years. The costs will either be borne by shippers, in the form of on-board pollution "scrubbers", or by refiners through plant upgrades to boost fuel quality.

It comes at a critical moment for refiners, who are already struggling with the worst downturn in their sector in decades. The costs associated with cutting sulphur will determine the future of the industry, said Michael Corke, a refining expert at Purvin and Gertz, an energy industry consultancy in Dubai. "The impact on the refining industry and oil markets could range from significant to massive, depending largely on how the use of scrubbers develops," Mr Corke said.

But even as costs rise for everyone involved, the new rules present an opportunity to Asian countries and the Gulf, including Abu Dhabi, to seize a larger share of the global refining market as they build new plants with more efficient technology. Roy Jordan, a refining expert at Energy Market Consultants, said owners of high-cost refineries in the US and Europe have already considered closing them permanently because of a sustained fall in refining profits.

"This will be another nail in the coffin," Mr Jordan said. "This is another pressure point that is coming on them. We were already looking at the probability of closures in the West because of the new Middle-Eastern export refineries." The extra costs for cutting sulphur are likely to coincide with additional costs related to lowering carbon emissions, as the world considers regulations to try to slow global warming. Refineries, which emit large amounts of carbon, have become the targets of regulators in the US and Europe for emissions cuts.

Under the new sulphur rules adopted by the International Maritime Organisation (IMO) last October, the proportion of sulphur in marine fuels, known as bunkers, will have to be reduced from 4.5 per cent today to 0.5 per cent by 2020. Environmental advocates and even some shippers say the rule change was long overdue. Shippers burn heavy fuel oil, the cheapest but also the dirtiest product that comes out of refineries.

Heavy fuel oil is the material left over when a refinery has finished processing a barrel of crude oil. It is a thick, gloopy substance often rich in sulphur, which needs to be preheated before it is burnt. Emissions from the fuel include sulphur dioxide, a common pollutant that causes acid rain and respiratory problems. When the US Environmental Protection Agency announced new limits on shipping emissions in US waters in March, it said the new caps would "save up to 8,300 American and Canadian lives every year by 2020".

Under the new international regulations, refiners and shippers have three options: they can remove the sulphur from fuel oil, upgrade the fuel oil to a low-grade form of diesel, or continue burning dirty fuel and install scrubbers to remove sulphur from ship exhausts. The cost of shipping goods across the world will increase under all three scenarios but the first two options put the cost of significant capital improvements on refiners, while under the third scenario, shippers pick up the tab.

The onus will probably fall on refiners because they are easier to regulate, Mr Jordan said. "The refining sector is the one who is going to have to bear the cost," he said. "Competition is such that you will not necessarily recover those extra costs." For a refinery to upgrade fuel oil to diesel, also known as distillate, it needs to install specialised equipment, including a device called a hydrocracker. Mr Jordan says that the average hydrocracker costs about US$750 million (Dh2.7 billion) and the industry will need between 80 and 100 units for the shipping market alone.

OPEC warned in its annual outlook released this summer that "even partial conversion of [heavy] grades to distillates will have a major impact on refining". The new regulations call for a study to be concluded by 2018 that will determine whether 2020 is a feasible deadline. If needed, the IMO can extend it to 2025. Mr Jordan said an extension is very likely. "Our view is that it is not achievable fully by 2020," he said. "The problem is that there was going to be a big increase anyway for [diesel] from on-land uses. The system is not capable of doing it."

Until now, experts have viewed the third option, on-board scrubbers, with scepticism. Scrubbers have been installed for years in power plants and heavy industry onshore, but few firms have seen an economic rationale for developing a compact and affordable version of the technology for use on ships. Last week, however, the Finnish engine company Wartsila announced it had tested a shipboard scrubber that successfully removed sulphur from fuel oil, and had received certification from an outside auditing firm.

The scrubber removed 99 per cent of sulphur from the fuel, and Wartsila said it saw a market developing as a result of the new regulations. With the international shipping fleet numbering more than 90,000, experts say it will take decades for every ship to be outfitted with new pollution-control equipment. The rate of installation will have serious ramifications for refiners. A study of refiners on the eastern coast of the US by Purvin and Gertz found that if a high percentage of ships used scrubbers, refiners would need to supply fewer than 50,000 barrels per day (bpd) of low-sulphur fuel oil and 50,000 bpd of marine diesel by 2025.

But the study said that with a low percentage of ships using scrubbers, refiners would need to install equipment to produce twice as much low sulphur fuel, and 50 per cent more marine diesel. Those in the industry who are able to supply new clean fuels, including Middle East producers, should see the changes as an advantage, Mr Corke said. "Refiners tend to view such changes as threats, but more correctly they are opportunities," he said.

In the case of low use of scrubbers, refiners who make timely investments in equipment to supply low-sulphur fuel and diesel will be the winners, Mr Corke said. "Some of those who can't or won't invest may well go out of business." cstanton@thenational.ae

THE BIO

Ambition: To create awareness among young about people with disabilities and make the world a more inclusive place

Job Title: Human resources administrator, Expo 2020 Dubai

First jobs: Co-ordinator with Magrudy Enterprises; HR coordinator at Jumeirah Group

Entrepreneur: Started his own graphic design business

Favourite singer: Avril Lavigne

Favourite travel destination: Germany and Saudi Arabia

Family: Six sisters

Like a Fading Shadow

Antonio Muñoz Molina

Translated from the Spanish by Camilo A. Ramirez

Tuskar Rock Press (pp. 310)

Brief scores:

Toss: Northern Warriors, elected to field first

Bengal Tigers 130-1 (10 ov)

Roy 60 not out, Rutherford 47 not out

Northern Warriors 94-7 (10 ov)

Simmons 44; Yamin 4-4

COMPANY PROFILE

Company name: ASI (formerly DigestAI)

Started: 2017

Founders: Quddus Pativada

Based: Dubai, UAE

Industry: Artificial intelligence, education technology

Funding: $3 million-plus

Investors: GSV Ventures, Character, Mark Cuban

Company Profile

Company name: Namara
Started: June 2022
Founder: Mohammed Alnamara
Based: Dubai
Sector: Microfinance
Current number of staff: 16
Investment stage: Series A
Investors: Family offices


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