The landing costs of petroleum products imported into Nigeria are expected to increase when stricter shipping fuel standards by the International Maritime Organisation kick-in on January 1, 2020.
The new IMO rules prohibit ships from using fuels containing more than 0.5 per cent sulphur, compared with 3.5 per cent through the end of December, unless they are equipped with exhaust-cleaning ‘scrubbers’.
PwC Nigeria, while presenting a report on the impact of the IMO 2020 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.
The report was developed in partnership with Energex Partners and Downstream Advisors Inc. 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 would 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.”
Hameed Alaba of Downstream Advisors Inc said there would be an unprecedented increase in demand for the Nigerian sweet crude, resulting in increased government revenue.
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 added.
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 is a knock-on effect 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 crudes and run their basic distillation units with sweet crude.”