Impending regulations to be issued in 2020 by the International Maritime Organization (IMO) that aim to reduce sulfur in marine fuels are "the elephant in the room" for shipping and refining businesses, according to Gary R. Heminger, chairman and CEO for the Marathon Petroleum Corp.
Referring to "the basics and the fundamentals," Heminger noted North America's refining system is already "very compliant," as are the refining systems found in Europe, most of Asia and the Middle East.
"Here in North America, our industry has invested as much as $150 billion over the last 10 or 12 years to get prepared for low-sulfur diesel, so we are prepared and we are compliant," Heminger said. "We could be compliant today and meet the needs of America."
In a discussion focusing on global oil leadership at CERAWeek by IHS Markit, held recently in Houston, Heminger noted the IMO's proposed regulations are a global issue.
"This isn't a United States or North American issue. This is the first time on the refined products side of the equation that we've had a global commodity (diesel) that the shipping industry and the major construction industry uses," he said. "But we are compliant, so I think it is going to be the stair-step of compliance and will probably take a year or so until you get the market compliant."
Reflecting on the autumn months of 2018, Heminger reminded conference delegates of some discussion coming out of the Trump administration that "would relax the takeoff " of these IMO regulations.
"I think now everybody understands the issue better and understands that the global refining industry is ready to take this on," he said. "But I would expect that by maybe midyear of 2019, we will see people start to inventory low-sulfur diesel to get ready for this changeover."
Heminger assured delegates the IMO's compliance requirements would not be an abrupt shock to the market.
"It will not be a shock. It takes a long time," he said, adding that in March, Marathon was in the process of transitioning from winter grade to summer grade gasoline. "It is the same type of changeover," he said. "The industry will start to prepare. They will start to eliminate high-sulfur bumpers that are in their system, and they will start reaching into low-sulfur fuels."
Regulatory reform
Heminger said he considers the "No.1" oil and gas regulation in need of reform to be the Renewable Fuel Standard. Heminger observed that while the industry is experiencing steady global demand for gasoline, increasing at half-percent or three-quarters of a percent per year, the increase in that demand for diesel, at as much as 2 percent, is even greater.
"We are still very bullish," Heminger said, adding that he is not "anti-renewables or anti-other sources of energy."
"We need all other sources of energy as well," he said. "The consumers will decide what they want."
The popularity of trucks and SUVs, he said, indicates consumers will choose to remain within the liquid fuels markets for at least the next two generations of vehicles.
"It is quite evident the Renewable Fuel Standard across America does not work," he said. "America has an insatiable appetite for gasoline. There is an opportunity here as we come within the Renewable Fuel Standard. There is an opportunity for a reset. I know the administration is on board to get this reset right."
Daniel Yergin, vice chairman for IHS Markit, moderated the discussion.
