(Bloomberg) -- New rules forcing ships to use cleaner marine fuels may deal yet another blow to cash-strapped Petroleos de Venezuela SA, an exporter of high-sulfur fuel oil.
From Jan. 1, 2020, vessels will have to switch to less-polluting bunker fuel or be fitted with equipment to curb emissions, under new International Maritime Organization rules. That’s expected to weaken demand for the high-sulfur residual fuel oil produced by PDVSA, pushing prices lower at the same time that the cost of importing clean fuels rises, said Mel Larson, a consultant at KBC Advanced Technologies Inc.
As refiners prepare to produce IMO-compliant fuels that rely on low-sulfur crude oils, sour crude produced by Venezuela and Mexico may be sold at deeper discounts. Meanwhile, demand for lighter distillates, including diesel, is expected to increase. That ultimately will take a toll on the economies of Venezuela, Mexico and Ecuador that rely on imported diesel and gasoline.
“IMO 2020 has the potential to hurt GDP growth in most Latin American economies, especially the ones that subsidize fuel prices,” Larson said by email. “As the cost of imported fuels rise, subsidizing gasoline and diesel will only serve to expand a country’s or company’s debt load.”
Most refiners in Latin America haven’t invested in units that can remove sulfur or crack residuals into more valuable molecules. That puts them at a disadvantage ahead of the rule, which is expected to slash global demand for high-sulfur bunker fuel to as low as 1 million barrels daily from 4 million barrels currently.
By this measure, Petroleos Mexicanos and PDVSA, respectively Latin America’s largest and second-largest exporters of fuel oil, are the ones who have most to lose.
Petroleo Brasileiro SA, on the other hand, is set to take advantage of the fuel shift, according to Guilherme Franca, executive manager of commercialization. Petrobras already exports IMO-compliant fuels and is exploring the re-opening of fuel oil storage tanks in Singapore to better supply bunker fuel markets in Asia.
