If you bought the dip in refiner stocks last Friday on the Wall Street Journal report that the Trump Administration was seeking a delay of new 2020 low-sulfur shipping fuel standard, the IMO gave you a reason to smile today.
The International Maritime Organization (IMO) Marine Environmental Protection Committee (MEPC) today rejected an attempt by a group of shippers to delay enforcement of the new clean fuel standard set to take effect on January 1, 2020.
Since the North American industry is already low-sulfur compliant, US refiners stand ready to benefit from the expected high demand for the cleaner shipping fuel after the new rule goes into effect. As we said in Monday's note, we viewed the WSJ article as a head-fake to the market. While we agree that Trump will likely be a chief critic of the standard set to be implemented ahead his own re-election year, there is little that the administration can do to delay or reverse the rule. Now even after the administration signaled support for a delay, the IMO rejected the effort.
There are limits on press coverage of MEPC meetings but we have been following the twitter feed of Michelle Bockmann, an analyst at Clipper Data who has been in the room covering the event. Some of the restrictions involve Chatham House Rules where the substance can be reported but not the person who made the remarks. Here are some relevant tweets from Bockmann:
As Bockmann reported, the committee invited more proposals at the next meeting in May 2019 on the MARPOL Regulation 18 which deals with fuel quality and availability of compliant fuels, including a data analysis and collection period. The shippers group that attempted a delay called it an "Experience Building Phase" or EPB to collect analysis and data so we expect they will make another attempt at the May meeting.
But as we said in Monday's note, a delay is very unlikely if not impossible, and the implementation of the IMO standard in 2020 is very bullish for US refiners.
International Maritime Organization (IMO) Global Low-Sulfur Standard
The US signed a treaty in 1950 to become a member of the International Maritime Organization (IMO), which is a United Nations agency responsible for international shipping regulations. The fact that it’s a treaty ratified by Congress means the US must abide by the group’s decisions (in contrast to the Paris Climate Agreement which was not a treaty). In 2008 the IMO adopted cleaner fuel standards that would reduce sulfur content in shipping fuel distillates from 3.50 percent mass by mass (m/m) today to 0.50 percent m/m on January 1, 2020. The international regulation provided an option for a delay to 2025 if an agency review determined a lack of sufficient availability of the lower-sulfur content fuel. But in 2016 the IMO decided to adhere to the 2020 implementation date. Click here for an FAQ on the IMO 2020 Global Sulfur Limit.
