Diesel is in Demand

The International Maritime Organization has new rules on fuel emissions that will come into effect in 2020. Those rules will put diesel in high demand.

The new emission rules stipulate that only vessels using fuels with a sulfur content of 0.5 percent or less will be allowed to roam the oceans. That strategy is aimed at cutting total carbon emissions from maritime transport in half by 2050. Those that use fuel with a higher sulfur content (the current limit is 3.5 percent) will be allowed to remain in operation only if they are equipped with emission-clearing equipment.

As a result, high-sulfur fuels demand will take a hit while low-sulfur fuels enjoy higher demand. Diesel is a low-sulfur fuel. American refiners are set to reap benefits, with a few added costs to production.

Robert Rapier noted in Forbes that refiners have already gone through one capacity upgrade when the first ultralow-sulfur diesel regulations entered into effect in the United States in 2006. Now they will have to boost their ultralow-sulfur diesel production capacity to satisfy the higher demand from the maritime industry. This means more investments into equipment and more purchases of sweet crudes that are lower in sulfur content than sour crudes, which will naturally push up the price of the crude.

European refiners also have cause to celebrate: diesel demand on the continent has been falling recently as a result of the so-called Dieselgate, the scandal with Volkswagen’s emission-control rigging, and as a result of EU policies driving a shift from diesel to gasoline and electric cars. With the new maritime rules, the European refiners will be busy once again.