The bottom of the barrel — residual fuel, bunker fuel, asphalt and petroleum coke — take up a little more than 5% of total US consumption. But because of new rules affecting the second of that group, bunkers, it’s about to undergo an upheaval that could easily spill over into other markets.

The consensus on day one of the Platts 10th Bunker & Residual Fuel Conference in Houston is that despite significant talk about the shipping industry getting to mandated lower sulfur levels through a variety of means — LNG or desulfurizing onboard scrubbers being the most prominent alternatives — it’s almost certainly going to be marine gasoil or marine diesel that gets the shipping industry across the finish line.

And make no mistake about it: it’s on the backs of the shippers. Refiners are not going to step up with some magical new elixir that will accomplish the goal. “If they think the refiners are going to fix their problem for them, they’ve got another think coming,” one storage company executive said on the sidelines of the conference.

So just what is the impact on the distillate market going to be? The precise amount of bunker demand has always been one of the biggest mysteries for analysts putting together supply/demand balances. But Kurt Barrow, vice president of downstream consulting at IHS Purvin & Gertz, did put a number on it, at least for the European and North American Emission Control Area: 400,000 b/d.

That’s the amount that diesel demand should pick up after the International Maritime Organization-mandated change comes into effect in January 2015, when the permissible sulfur level in bunker fuel in the ECAs drops from 1%, which went into effect just last year, to 0.1%. Worldwide, it is slated to drop from 3.5% at present to 0.5% by the start of 2020, though that date could slide.

(A map of the European ECA is here. The North American ECA can be seen here.)

“This is a significant change for the Atlantic Basin,” Barrow said of his 400,000 b/d estimate. “This is pretty substantial. In 2015, there’s going to be a pop in the diesel market.”

Over the course of the day, various speakers discussed one alternative after another to diesel, a market that is already seen by most forecasters as gradually tightening over the next several years. And one by one, the ability of these technologies to move in front of diesel as an alternative, at least for now, was mostly dismissed.

Ted McGreevy, vice president at Muse, Stancil, said there was very little opportunity to blend low sulfur crudes with other blendstocks to make a 0.1% bunker fuel, though blending to a 0.5% fuel for the broader global standard was possible.

Larry Bowling, director of maritime technical services at Maersk Line Ltd., US subsidiary of the Denmark-based shipping giant, provided a long list of shipping projects that would expand the use of LNG as a shipping fuel. But they’re mostly just getting off the drawing board, and they’re proposals; he didn’t offer sweeping predictions about an LNG future.

And John McDonald, founder of the new BOSTCO fuel oil terminal in Houston, said LNG could take 10-15% of the shipping market in the next 10 years. But all references to LNG over the course of the day noted the enormous barriers that exist before its widespread replacement for bunker fuel could occur: there are not adequate resupply facilities around the world; space on ships for LNG “gas tanks” is needed; and so on. Jerry Lichhtbau, director of research and analysis at True North Chartering, noted that the crew on an LNG-fueled ship would need to be LNG-certified, which is an onerous process.

The consensus at the conference clearly was that the hot new idea — LNG in ships — has a great future but isn’t ready for prime time.

As for scrubbers, they have clearly come back into vogue. But they’re expensive, and there still remains a significant doubt about when the worldwide tighter rules will come into effect. They could come as early as 2020, but could also be delayed until 2025. Joseph Cox, president of the Chamber of Shipping of America, noted that the IMO just recently rolled back the implementation of a ballast rule that had been seen as burdensome to comply with, and said that the move could portend a delay in the 0.5% global sulfur rule until 2025. But that sort of uncertainty is going to delay investments in scrubbers, several speakers noted.

But even if the refiners aren’t making plans to switch their operations to give a boost in supply to the shipping industry, that doesn’t mean it can’t happen. McGreevy said a combination of coking and hydrotreating could boost distillate output if needed. In a similar vein, Barrow noted that there were plenty of intermediate products in a refinery stream that could be modified, presumably by hydrotreating, into more distillate supply.

“The shipowners should say to the refiners, I need a low sulfur product, but you don’t have to make a diesel product,” Barrow said. It wouldn’t need to meet all the normal specs of diesel, he said, and could be produced using intermediates such as coker gasoil. But he conceded that he is not aware that these conversations are taking place.

The total demise of residual fuel as a source of electricity generation still has some pockets of resistance, according to another speaker.

Jesse Axelrod, senior oil market analyst at Axelrod Energy Projects, said there is life in using fuel oil to generate electricity in various independent power projects around the world. He cited four countries doing so: Jordan, Dominican Republic, Namibia and Bangladesh.

A combination of several things needs to come together for fuel oil to push out natural gas, the fuel of choice in most other new IPPs (or those of state-owned utilities). Governments still like the IPP route, with a private-sector owner, if their country is suffering from a dual shortage: electric power and capital. Private equity will fill the gap, Axelrod said, if it can get fuel supply agreements and a purchased power agreement, usually with a buyer like the state utility. Other fiscal incentives can help get the deal done.

And there are advantages to fuel oil, Axelrod noted. The plants can get built quickly. It doesn’t need infrastructure to get natural gas to the plant, though obviously it needs some sort of logistics system to get the fuel oil there. Fuel oil is cheaper than diesel. And when they are needed for peak power generation, they get “hot” fast.

So there’s life in at least one part of the bottom of the barrel.