Monday, November 25, 2019 /09:31 AM / By PwC Nigeria / Header Image Credit: AAL SHIPPING
The
2020 International Maritime Organisation (IMO) Fuel Sulphur Regulation comes
into effect from I January 2020. The new regulation provides a 0.5% global
sulphur cap on fuel content, lowering from the present 3.5% limit. This new cap
is part of the IMO's response to heightening environmental concerns,
contributed in part by harmful emissions from ships.
The
implications of this new regulation for refiners, shippers and other
stakeholders in the industry is far- reaching. While marine fuels account for only
about 4% of global oil demand, the IMOs regulations changing the quality of
shipping fuel will have a global effect on oil prices. Indeed, the new rules
potentially add billions of dollars of cost to Africa. The rising price of fuel
for shipping will raise the delivered cost of imports and depress those of
exports. As Africa is a significant importer of Automotive Gas Oil (AGO) /
Diesel, and Gasoline, it has exposure to rising prices resulting from the
change in refining activity needed to meet the new regulations.
The
impact of the new regulations on the African oil sector will be profound given
the mix of lower and higher sulphur in oil production in some places. Compared
to the global average, there are generally less complex refineries in Africa; there
are government subsidies for road-fuel; there is a higher dependence on
imported fuels (which are expected to increase in price); and a higher
proportion of power generation fed by high sulphur fuels. The challenges posed
by the new regulations must be understood and prepared for by all those
affected.
Many
industry experts and researchers have written on the impact of the regulations
from various perspectives with very little detail on the impact on Africa. PwC
Nigeria in partnership with Energex Partners and Downstream Advisors Inc. has
developed a detailed Africa-centric report examining the impact of the
regulation on the continent and considering key actors in the market viz
producers, refiners, consumers, governments, industries among others.
This 58
page report contains rigorous in-depth analyses of the wins and possible losses
Africa stands to make as a result of the regulation. It also discusses the
challenges, key considerations and strategic imperatives for each player in the
African oil and gas industry.
It will
make an important document for policy makers and players in the industry as
they prepare for the new regime.
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