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With increased regulation, continued decline in residual fuel oil demand is expected

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Posted October 12, 2015

Health and environmental concerns related to the high sulfur content of residual fuel oil (RFO) have led to new policies and regulations that have significantly lowered expectations for future RFO use globally. As the demand for RFO declines, the need for the refining upgrades to convert residual material to lighter, cleaner products will increase.

Image credit: U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

As its name implies, RFO is one of several residuals that remain after lighter material, like gasoline and distillate, are distilled out of crude oil. RFO contains a large amount of contaminants, including sulfur, nitrogen, and heavy metals. Because of its high viscosity, RFO is either blended with lighter streams or heated to ensure that it can be pumped.

Throughout the world, RFO is used in many sectors, including marine transportation, power generation, commercial furnaces and boilers, and various industrial processes. In some areas, RFO is a relatively low-cost fuel for space heating. RFO plays an important role in the global liquids fuel market, as its price is normally below that of other liquid fuels.

Large reductions in RFO demand will likely come from decreased use of RFO for power generation and space heating. In the power sector, the cost of pollution controls, maintenance, and RFO heating often offset the lower cost of RFO when compared to natural gas and other more expensive fuels. Consequently, power sector demand for RFO, especially in industrialized countries, is expected to decrease. However, RFO will serve as a transitional fuel in the power sector of developing countries that may be more sensitive to price and less sensitive to environmental and health implications.

Another significant reduction in RFO demand may come from the implementation of rules set by Annex VI of the International Maritime Organization through the International Convention of Pollution from Ships (MARPOL, or Marine Pollution). Since 2012, these regulations have required controls on sulfur and nitrogen oxides emissions worldwide. The regulations monitor the emissions associated with combustion rather than the fuels themselves.

Because few refineries are capable of removing sulfur from RFO, MARPOL compliance will likely be achieved using two approaches: using fuels with lower sulfur content such as marine gasoil or intermediate fuel oil, or removing sulfur post-combustion, using scrubbers or other technologies to remove sulfur from the exhaust. Some marine transportation operators are considering the use of liquefied natural gas (LNG) as an alternate fuel for ships operating along routes where LNG is available.

The levels stipulated by the MARPOL regulations can be met by using RFO with sulfur levels of no more than 3.5%. These rules also set more stringent requirements—consistent with RFO sulfur levels of no more than 0.1%—in designated emission control areas, which include the North Sea, the Baltic Sea, and coastal areas in North America and the Caribbean Sea. Pending a decision in 2018, subsequent MARPOL regulations will require emission reductions consistent with the use of RFO that has sulfur levels of no more than 0.5% in other areas as early as 2020 or as late as 2025.

Image credit: U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

Source: EIA

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