Upcoming rules by the International Maritime Organization to lower the amount of sulphur in shipping fuel will present one of the biggest challenges to energy markets in 2020, says Earl Burns, general manager, global market risk, pricing and enterprise risk management, at refining giant Phillips 66.
Coming into force in January 2020, the new rules will reduce the sulphur content allowed in shipping fuel from the current limit of 3.5% to 0.5%. Ships will then have to either use compliant low-sulphur fuel oil or fit exhaust-cleaning technology known as scrubbers, which extract sulphur emissions allowing the old high-sulphur fuel oil to continue to be used.
The impact of the rules will be felt far beyond the shipping world, changing refinery economics and pricing. The rules will bring significant change to fuel and distillates markets and will affect refiners and traders, says Burns. Ultimately, this will contribute to increased volatility, which will be another major challenge in 2020, he says.
“Volatility is going to become the norm in 2020. We saw record volatility last year, high volatility this year. I think that’s just going to continue,” he says.
A third challenge next year, he believes, will be shareholder activism. The growth of the sustainable investment movement and popularity of environmental, social and governance-type funds illustrates the power of shareholder activism. Energy firms are certainly coming under closer scrutiny and pressure to disclose more about their impact on the environment as well as their susceptibility to transition risk.
“I think [shareholder activism] will have an effect on the industry as well,” he says.