A new report by PwC Nigeria, has projected the possibility of higher demand for the country’s sweet crude from next year, going by the new fuel sulphur regulation of the International Maritime Organisation (IMO), billed to take effect from January 1, 2020.
The new regulation provides a 0.5 per cent global sulphur cap on fuel content, lowering from the present 3.5 per cent limit. This new cap is part of the IMO’s response to heightening environmental concerns, contributed in part by harmful emissions from ships.
Commenting on the opportunities, Hameed Alaba, of Downstream Advisors Inc., said there would be an unprecedented increase in demand for Nigerian sweet crude, resulting in increased revenue for government.
“There is going to be a struggle to get sweet crude because now you are bound by regulation to produce low sulphur fuel, so you would go for the sweet crude other than the heavy crude,” he noted.
However, the report indicated that the new rule potentially add billions of dollars of cost to Africa when stricter shipping fuel standards kick off.
On implementation of the rule, the rising price of fuel for shipping would raise the delivered cost of imports and depress those of exports.
PwC Nigeria, while presenting a report on the impact of the IMO 20202 on Africa on Friday in Lagos, said the implications of the new regulation for refiners, shippers and other stakeholders in the industry would be far-reaching
According to the report, which was put together in collaboration with Energex Partners and Downstream Advisors Inc, the implications of this new regulation on the African oil sector will be profound given the mix of lower and higher sulphur in oil production in some places.
The Energy Utilities and Resources Leader, PwC Nigeria, Pedro Omontuemhen, said the overall impact of the IMO 2020 would be determined by the work that will be done and the strategy adopted by the government.
He said, “It could come out to be positive if we take advantage of the increased demand that we foresee that is going to be placed on the low sulphur crude oil.
“It may have an impact on the pump prices of petroleum products. Clearly the shipping cost will go up. If shipping cost goes up, that means landing cost will go up.
“So one of the things the government can do is to pass on that cost to the consumers or, like we are currently doing, continue to absorb it and call it under-recovery or subsidy,” he stated.
Steve Jones of Energex Partners, said the impact of the new regulations on the African oil sector would be profound.
He said, “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.
“There are knock-on effects all the way through to the African oil industry. For African producers who produce sweet crude, it is a very good thing; that crude will become more valuable for the African refiners because of their low complexity.
“It can be a good thing if they can access sweet crude and run their basic distillation units with sweet crude,” he stated.