Demand for 500,000 bbls/d of Canadian heavy oil at risk with new international low-sulphur marine fuel rules

New global sulphur emissions reduction rules for marine traffic taking effect in January 2020 put at risk 500,000 bbl/d of Canadian crude, according to the Canadian Energy Research Institute (CERI).

“But ‘at risk’ doesn’t mean that the barrels are not going to be produced,” explains CERI vice-president Dinara Millington.

“What we are saying and what the various analysts are saying is that the demand for this type of crude will fall, or that the refiners will buy it at even a cheaper price as a dirty feedstock because they have to do all this processing or potentially pay penalties.”

The International Maritime Organization (IMO) announced a sevenfold reduction in allowable sulphur levels in marine/bunker fuels October 2016. The rules will allow only 0.5 per cent sulphur from the current 3.5 per cent, starting January 2020.

The shipping industry is among the world's biggest sulphur emitters, with sulphur oxide content in heavy fuel oil up to 3,500 times higher than the latest European diesel standards for vehicles.

About half of all Canadian conventional heavy crude and non-upgraded bitumen has a sulphur content of between two and five percent.

“Globally Canada is not a large player in the servicing the demand of marine transportation,” Millington says.

“But if we predict that Canada will have greater access to global markets and takes a bigger role in providing marine transportation fuel, that floor [of 500,000 bbl/d] will be a higher number of barrels potentially at risk if we don’t takes steps to limit the higher sulphur content in the bitumen.”

A number of options are available for producers, refiners and the global shipping fleet.

“For the upstream producers, trying to get rid of the bottom ends before it is exported is one option. If that is not taken care of, the downstream refiner would have to do it,” Millington says.

Retrofitting existing ships with sulphur-scrubbing technology is another option that would allow vessels to continue to use potentially cheaper high-sulphur bunker fuels.

And on new builds, shipping companies could switch to other fuels altogether, such as LNG.

The economics of any these options will determine their viability. Currently, the shipping industry is struggling with a down cycle similar to that faced by the oil and gas industry, so both sectors face difficult choices.

Another promising solution for meeting the 2020 low sulphur bunker fuel targets is partial upgrading of Canadian bitumen. Field Upgrading, for example, is specifically targeting a bunker fuel product. The timeline of development for this partial upgrading solution, however, is probably longer than two and half years.

“The 2020 timeline for the IMO regulation is pretty clear, but whether [Canada’s] industry will keep up with that is questionable,” Millington says. “The bigger issue for the oilsands industry is the emissions cap and carbon intensity levels.”

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.