Analysis

Fuel Oil will be a major fuel despite new regulations: a new OPEC study

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Vienna 

A new study conducted by the Organisation of Petroleum Exporting Countries (OPEC), aiming at analysing the impact of IMO and carbon regulations on the future of fuel oil utilisation. The study showed that Fuel Oil will occupy a share of at least 56% of the transport energy demand by 2030 if scrubbing systems are implemented by the shipping industry.

Dr. Yousef Alshammari, a Research Scientist at the University of Vienna and the lead author of the study which has just been published at the OPEC Energy Reviews, stated that “the International Maritime Organization (IMO) will require the shipping industry to use fuels with a maximum Sulphur concentration of 0.5% by 2020”. “Such a decision could affect the attractiveness of fuel oil market, while it increases demand on other low-sulphur fuels including middle distillates, liquefied natural gas (LNG), marine gas oil (MGO) and biofuels, that may be both expensive and not readily available”. “Our study, which was conducted using a Linear Programming Optimization Software (MESSAGE), shows that the increase in crude oil prices will enhance the economic viability of using middle distillates compared to using fuel oil with scrubbing systems. We also found that imposing a CO2 price between $50-150/TonCO2 leads to reducing the emissions from fuel oil combustion by 87% by 2040”. A minimum carbon price of $50/Ton CO2 was found to be required to make CCS economically competitive.

Scrubbing systems make use of seawater to absorb the sulphur dioxide from the flue gas, converting it to sulphate which is a natural seawater constituent, and hence, it can be safely discharged into the sea. The use of CCS and scrubbing systems will add additional costs to the costs of fuel oil, and that requires detailed economic assessment of future scenarios for a feasible transition to low-carbon and low-sulphur fuels. Furthermore, the study recommends investments in both technology developments, applications and implementation of necessary policy incentives to make it commercially available by 2025. This could enable more cost-effective use of fuel oil when coupled with CCS under stringent carbon pricing regulations.