The mandate by the International Maritime Organization requires ships globally to reduce the sulphur content in their bunker fuel to 0.5% from January from the current 3.5%.
Cosmo Oil, a unit of Cosmo Energy Holdings Co Ltd, is using VLSFO produced at its residue desulphurizer (RDS) unit at its Chiba refinery near Tokyo to build stocks, Cosmo Oil's President Shunichi Tanaka said on Sunday, ahead of the Asia Pacific Petroleum Conference (APPEC), Asia's largest oil industry gathering.
"We still have some spare capacity at our residue desulphurizer so we can produce more low-sulphur fuel oil to supply to the bunker market," Tanaka said.
This will also reduce Cosmo Oil's surplus gasoil production, which used to be exported, he said. Residue from the RDS is typically processed further at secondary refining units to become higher value products such as gasoline and diesel.
Cosmo's decision to start selling VLSFO is part of a growing trend among Asian refiners seeking to capitalize on IMO demand. As VLSFO production grows, demand for alternative marine gasoil (MGO) may not be as robust as initially forecast.
Rather than burning VLSFO or MGO that contain 0.5% sulphur, ships can instead add sulphur-removing units, or scrubbers, onboard to continue using cheap high-sulphur fuel oil (HSFO).
Of the six oil tankers under long-term charter by Cosmo Oil, half of them are fitted with scrubbers while the rest will use VLSFO, Tanaka said.
The company is in talks with suppliers to lock in some VLSFO supplies as it expects to start switching to the new fuel from October, he added.
Cosmo Oil will also increase slightly the capacity of its coker unit at Sakai refinery when the unit restarts by end-October after a revamp, its officials said.
The unit, which processes fuel oil into middle distillates, was shut on Aug. 21 for the revamp.
(Reporting by Florence Tan; editing by Richard Pullin)
By Florence Tan