IMO 2020 could be less disruptive than previously thought, according to new analysis by HSBC.
More ships have installed scrubbers than forecast, which will lead to greater consumption of high-sulphur fuel oil and less demand for marine diesel between 2020 and 2021, the bank believes.
This will, in turn, reduce the scale of disruption from the regulations when it enters into force on 1 January 2020, the bank said.
HSBC now expects compliant fuel to account for 88% to 90% of the industry's total marine fuel consumption in 2020 and 2021, up from 75% to 80% previously.
"Together with better preparations in the refining industry, we now expect IMO 2020 to be somewhat less disruptive," HSBC said in its note.
"That said, we remain convinced the transition won’t be smooth and will require clear pricing signals in the form of higher refining margins."
The number of scrubbers currently installed or planned is just under 2,500 systems as of mid-March, the bank said, citing Clarksons data.
This level exceeds HSBC's previous estimate of 2,000 units, which was forecast in July 2018.
Neither will bans on open-loop scrubbers have much effect, in the bank's view.
"We think the ban is insignificant for operators in long haul as the time spent in open seas is over 90%," the report stated.
Spreads between high- and low-sulphur marine fuels are still expected to widen, "but not as dramatically as previously envisaged".
The bank has trimmed its diesel/gasoil margin forecasts and has assumed a tighter discount of high-sulphur fuel oil to crude.
Refining picture
The regulation's impact on the refining industry will also be softer than expected, thanks to the preparations already being made by refiners, the bank noted.
"We still expect global refining throughput to rise substantially in 2020 (up 700,000 bpd), but now see the impact falling to 500,000 bpd (vs 800,000-900,000 bpd) in subsequent years as refining and shipping industries adjust faster than previously forecast," the bank said.
HSBC said it made the revision because it expects to see a smaller deficit of diesel/gasoil relative to demand than previously estimated.
Rising refining margins could potentially boost earnings by around 10% and cashflow by around 5% for European and US oil majors in 2020, HSBC said.
Repsol is the oil major best positioned to capitalise on the IMO 2020 regulation, in HSBC's view, due to its ability to capture diesel margins and its above-average exposure to the refining business.
"We expect IMO [2020] to boost [Repsol] profits by 22% in 2020 and cashflow by 11%, more than twice the average impact for the sector," said HSBC, which added that the effects would begin to be seen in the fourth quarter this year.
