IMO 2020: Key implications and solutions to the supply side
IMO 2020: Key implications and solutions to the supply side
Insight

IMO 2020: Key implications and solutions to the supply side

As the IMO 2020 deadline nears, refiners learn how to survive dynamic market forces by taking a risk analytics-based approach.

Refiners will soon be facing a new market reality. In 2016, the United Nations’ International Martine Organization (IMO) announced a mandate known as IMO 2020 that called for the global shipping industry to burn 85 percent less sulfur by Jan. 1, 2020. Refiners, as the suppliers of fuel oil, need to develop a strategic response to produce the fuels required for shippers to meet IMO 2020 compliance. A risk analytics modeling-type approach will help refiners to analyze key variables and constraints and understand how their products will fare in a dynamic market.

With four strategic options for IMO 2020 compliance—very low sulfur fuel oil, marine gasoil, new or refit scrubbers, and LNG (reduced Sox, Nox, and PM emissions liquefied natural gas)—refiners need to explore the various management scenarios that could come into play as the markets evolve.

Conceiving a demand-side response

To fully understand how IMO 2020 will affect their business’ production and processes, refiners need to complete the following three-step process:

            1. Develop current state understanding

Refiners must understand the demand by region, port, product, and customer, and review their supply chain to manage demand and fuel availability considerations. They’ll also need to analyze operational, crude and feedstock flexibility as well as trading capabilities.

            2. Model future-state impact

Developing future state scenarios for product demand by location and a viewpoint on tactical positioning under each scenario will help refiners to develop models based on value drivers that will trigger specific responses depending on market response and evolution.

            3. Develop strategic response

By engaging functions across the supply chain to communicate the plan and develop processes and metrics to track business value creation, refiners can begin to set up governance frameworks for data, process, and assets, and leverage learnings from tactical responses to develop a strategic solution.  

Staying ahead of supplier disruptions

The above response methodology examines the strategic areas refiners need to focus their efforts, from operational considerations—such as storage, equipment and supply chain constraints—to external constraints, such as feedstock and customer demand. Constraint-based modeling can develop potential future-state scenarios and highlight the demand-side constraints from an operational perspective to help formulate a particular response. Contracts analytics provide companies with the insight to optimize their assets, routes, prices, and their current equipment/storage facilities to stay ahead of disruption.

In the short-term, up to 18 months, most refiners will take a tactical response as they adapt to IMO 2020’s new fuel demands and new equipment requirements. But then organizations will complete their updates and finalize their new infrastructure, eventually achieving a new market equilibrium.

Learn more ways a risk analytics modeling-type approach can help you tackle other key implications regarding IMO 2020—including upward price pressure on sweet crude and blending stocks, supply chain configuration and storage, and improved margins for complex refiners—in “How do you use analytics insights to drive action today?”

See how the demand-side strives to reach IMO 2020 compliance in “IMO 2020: Key implications and risks to the demand side.”