Few consumers are willing to pay extra for their goods to reduce the amount of sulphur emissions they are personally responsible for - their own ‘Sulphur Shadow,’ as in the USA, UK and Russia, more than 35 per cent of consumers are unwilling to pay anything extra for a car to reduce their ‘Sulphur Shadow’
This reluctance of consumers to bear the cost of the sulphur emissions regulation was uncovered by research from KBC, a business improvement company for the energy and chemical industry. KBC surveyed more than 5,000 consumers across the USA, UK, China, India and Russia to discover to what extent consumers would be willing to pay to reduce their personal ‘Sulphur Shadow’ so refiners can determine their optimum investment strategies.
Globally, 16 per cent of consumers would be willing to accept an increase of more than 10 per cent in the cost of a mobile phone to reduce their ‘Sulphur Shadow.’ In China and India, however, this rises to 24 per cent, while in the UK, USA and Russia it is only nine per cent. This means that refiners producing for the US, European and Russian markets must be much more sensitive to optimising their operations and assets in response to the IMO 2020 regulations than those producing for Asia.
“International shipping accounts for up to nine per cent of the world’s sulphur gas emissions (mainly sulphur dioxide) and up to 30 per cent of sulphur concentrations in coastal regions as a result of burning fuel oil in their engines,” explained Simon Wright, executive vice-president of Marketing at KBC.
Enforcement of the new regulation from the IMO will have a massive impact on the economics of shipping. Faced with the enormous cost of scrubbing clean the emissions themselves, shippers prefer to rely on oil refineries to produce a cleaner fuel that does not require clean-up.
Shippers will inevitably have to pass on the higher cost of compliant bunker fuel to their customers which will trickle down to consumers in the form of costlier goods.
But with consumers not willing to pay more for their goods, (particularly consumers in Europe, the USA and Russia), those who are responsible for producing the fuel - the oil refiners - need to ensure that they find the lowest cost investment to achieve the newly regulated sulphur level in their marine oil fuel production that will keep consumer prices down.
“The IMO’s cap on ships’ sulphur emissions means that the burden of compliance has fallen to the oil refiners. Many have already started their investments but some are yet to decide on the best course of action. Oil refineries are facing two main choices – both of which could potentially hit the consumer with price rises. Refiners can choose to produce marine fuel oil that contains less sulphur, or they can seek new markets for the high sulphur fuel oil they currently produce. With the new regulations set to have a significant impact on the demand and price of the fuel oil mix, oil refiners need to act now to make their investment decisions,” Wright added.
The higher willingness of Asian consumers to pay more for goods could be due to the fact that their consumers are more aware of the effects of sulphur dioxide, on their health. About 90 per cent of consumers in China and India are aware that sulphur dioxide is harmful to their health, whereas only 67 per cent were aware in the USA, UK and Russia.
Stephen George, chief economist at KBC, noted, “Refineries need to find the optimum strategy to achieve the required sulphur level in their marine fuel oil production.”
“With refineries suffering in recent years from overcapacity and oversupply, the marine fuel transition is a perfect time to implement new margin-boosting technology and optimally reconfigure assets and operations. But there is no one-size-fits-all solution, so refiners will need support from experts in making their decisions,” George added.
“Implementing such technology for the reduction of sulphur emissions appropriately, and meeting other regulatory requirements at the same time, may help to future-proof refineries while boosting margins and delivering the cleaner fuels that the shipping industry will continue to require, helping consumers reduce their ‘Sulphur Shadow’ at reasonable cost,” Wright concluded.
