* 40 pct of Middle East, Europe refineries not ready - KBC * Time has already run out for smooth transition - IEA * New rules cut sulphur emissions to 0.5 from 3.5 pct from2020 * Analysts expect fuel oil demand to be cut by 2-3.5 mln bpd * IEA expects scramble for compliant fuel to disrupt market By Nerijus Adomaitis OSLO, April 18 (Reuters) - The shipping industry and oilrefineries are not doing enough to prepare for new rules cuttingthe amount of sulphur that vessels can emit from 2020, accordingto the head of the International Energy Agency' s (IEA) oilindustry and market division.

The new rules drastically cut the amount of sulphur that theworld' s ships can emit, from 3.5 percent currently to just 0.5percent. Ships that install " scrubbers" that remove sulphur asthe fuel is burned can continue to use higher sulphur fuels, butthe rest of the world' s fleet will need to purchase lowersulphur fuel in order to comply.

" The reality is that the industry has already passed thedate beyond the smooth transition," the IEA' s Neil Atkinson,told an energy seminar in Oslo. " We don' t think it' s going to bea smooth transition." The change is the most significant for the global shippingand refining sectors in decades, and experts and analysts expectit to reduce fuel oil demand by 2-3.5 million barrels per day(bpd) as a result.

Atkinson said that there has not been enough investment inscrubbers, and that the IEA is worried about the market' sability to meet demand for the low sulphur marine fuel thatships without scrubbers will need.

" There will be a scramble for new compliant fuel... it couldbe a huge issue in terms of a spike in prices for marine fueland a very, very disruptive market, and that' s only 18 monthsaway,? he said.

While some refineries have announced investments in newpieces of equipments to strip sulphur from the fuel theyproduce, enabling them to supply more compliant fuels, analystsat KBC said that some 40 percent of Middle Eastern and Europeanoil refineries are not ready for the new rules.

Experts have said the deadline is now too close for newupgrades to be ready in time.

" There is going to be a huge disruption in the shippingmarkets, particularly in those markets where (there) is rigorousenforcement," Atkinson said.