Tokyo — Japanese refiners by October-November will be able to supply bunker fuel that complies with International Maritime Organization regulations that take effect from January, Petroleum Association of Japan President Takashi Tsukioka said Wednesday.

"We will need to be ready to supply [IMO-compliant bunker fuel] by October-November at the latest in order to supply from January," Tsukioka said at a press conference in Tokyo. "We will surely be ready," he added.

The IMO will cap global sulfur content in marine fuels at 0.5% from January 1 next year, down from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%. Shipowners will have to either burn cleaner, more expensive fuels or install scrubber units for burning high sulfur fuel oil to comply with the rule.

ADVANCED TALKS WITH SHIPPING INDUSTRY

Tsukioka added that Japanese refiners were already in the advanced stage of talks with the shipping industry about their preparations for the IMO regulations.

Among the focus of discussions is whether the shipping industry can use existing ships for IMO-compliant bunker fuels, Tsukioka said.

"At least we have agreed with the shipping industry on a pour point and a kinematic viscosity [of the IMO-compliant bunker fuel]," Tsukioka said. "We have yet to clear [the issue of] blending oil."

Japanese refiners are testing whether the blending of on-spec fuels from different refineries will be acceptable for use in blending for IMO-compliant bunker fuel, Tsukioka added.

PAJ has conducted studies with Japanese refiners looking at scenarios, including the prospects of processing light and low sulfur crude oil, as well as the blending of export-grade gasoil to create a new fuel for shipping.

In the event of Japanese refiners opting solely to blend export-grade gasoil with high sulfur fuel oil, they could be burdened with surplus HSFO, amounting to around 4.80 million kl/year, or 30.19 million barrels/year, according to research conducted by PAJ.

In fiscal 2016-17 (April-March), Japan's annual bunker fuel demand was around 8.72 million kl, or 54.85 million barrels, out of which HSFO accounted for 6.66 million kl, according to the PAJ research.

COSMO OIL'S MOVE

Tsukioka's comments after Japanese refiner Cosmo Oil recently said it plans to start supply of 0.5% sulfur bunker fuel from October with the expansion of the coker at its 100,000 b/d Sakai refinery in western Japan.

The capacity of the Sakai coker will be increased to 31,000 b/d from the current 29,000 b/d when the refinery is shut for turnaround over July-September. Cosmo Oil will also expand desulfurization capacity at the same time, which will increase low sulfur product output.

Currently, shipowners that require low sulfur fuel at Japanese ports purchase low sulfur marine diesel oil. LSMDO volumes are estimated to be around 5,000 mt/month and MDO volumes about 500 mt/month.

Ocean-going vessels typically compare the price between US West Coast 0.1% low sulfur marine gasoil and Japan's low sulfur gasoil in making purchasing decisions, as the US is an emission control area.

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-- Takeo Kumagai, takeo.kumagai@spglobal.com

-- Edited by Wendy Wells, newsdesk@spglobal.com