Venezuela oil tankers. Picture: BLOOMBERG
Venezuela oil tankers. Picture: BLOOMBERG

Houston — New rules forcing ships to use cleaner marine fuels may deal yet another blow to cash-strapped Petróleos de Venezuela (PDVSA), an exporter of high-sulphur fuel oil.

From January 1 2020, vessels will have to switch to less-polluting bunker fuel or be fitted with equipment to curb emissions, under new International Maritime Organisation (IMO) rules. This is expected to weaken demand for the high-sulphur 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.

As refiners prepare to produce IMO-compliant fuels that rely on low-sulphur 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 petrol.

“IMO 2020 has the potential to hurt GDP growth in most Latin American economies, especially the ones that subsidise fuel prices,” Larson said by e-mail. “As the cost of imported fuels rise, subsidising petrol 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 sulphur 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, Petróleos Mexicanos and PDVSA, respectively Latin America’s largest and second-largest exporters of fuel oil, are the ones who have most to lose.

Petróleo Brasileiro (Petrobras), on the other hand, is set to take advantage of the fuel shift, according to Guilherme França, executive manager of commercialisation. 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.

Bloomberg