Readers rejoice and put on your captain’s hats, for today’s edition of the ClipperBlog will step into the anxiety-fueled world of IMO 2020!
For those in need of a quick primer, the IMO’s 2020 regulation will place a cap on the permissible sulfur content of marine fuels. When the cap goes into effect on January 1, the allowable sulfur content will fall from its current level of 3.5 percent to a far reduced (and cleaner) 0.5 percent. Demand for the widely utilized 3.5%S high sulfur fuel oil (HSFO) will accordingly drop as shipowners look for alternatives to power their vessels.
Shipowners have several options in order to comply with the regulation. They can install scrubbing devices on their vessels to “scrub out” high sulfur emissions and continue to burn HSFO. Shipowners can also consume “compliant” marine fuels such as marine gasoil (MGO) and low sulfur fuel oil (LSFO), the latter of which has been of particular interest in recent weeks here at ClipperData.
We recently inspected four US patents awarded to major oil companies concerning the blending of hydrocarbons to create an IMO 2020 compliant LSFO. ClipperData highlighted this story in its Beyond 2020 report, an overview of industry changes ahead of the IMO’s sulfur cap.
The patents in question are still largely unknown to many industry stakeholders, but they have the potential to throw a wrench into the post-IMO 2020 bunker supply market. Below are three reasons you should be interested in these LSFO patents.
- The LSFO Patents are VERY Broad
The first thing that stands out about the LSFO patents is that they are very broad. They contain far-reaching claims that seem to encompass all viable recipes for a compliant LSFO. This has sent chills down the spines of LSFO producers, who fear an attempt to use blending to create LSFO for IMO 2020 compliance would require a license from a patent holder.
- The Patents May Result in an Abundance of Infringement Lawsuits
Industry sources speaking with ClipperData have argued the scope of these low sulfur marine fuel patents could very well result in an abundance of lawsuits claiming patent infringement. The LSFO patents awarded by the US Patent and Trademark Office (USPTO) are carefully calibrated to be as broad as possible, while at the same time passing the bar of specificity for patent protection.
But questions remain as to how these patents were granted given that LSFO has been in production for quite some time. Nevertheless, these patents may result in legal action between the patent holder and other LSFO producers.
- The Patents May Dissuade Companies from LSFO Production
It is entirely possible these patents might dissuade companies from producing LSFO altogether. Fear of litigation and patent infringement may centralize LSFO production among patent holders, those with licenses, those with enough complexity to produce secure alternatives to the patented fuels, and those with enough resources to withstand lengthy legal challenges.
It is therefore likely the smaller bunker fuel oil producers and blenders that have the most to worry about. Without the means and resources to defend themselves in court against multinational oil conglomerates, smaller LSFO producers are more likely to turn their back on LSFO production or seek licenses.