The number of ports in which low sulphur fuel will be available at the start of 2020 will be limited and the compliant fuel will be an expensive affair for shipowners, according to the Marine Bunker Exchange (MABUX) in the June issue of BIMCO Bulletin Magazine.
The IMO sulphur regulation would change not only the daily life of the shipping industry, but would also bring about a drastic change to the refinery and bunker industry. MABUX said that shipowners were ready, but the bunker market was not. Reports from oil majors regarding delivery of very low sulphur fuel were concerning.
MABUX estimated that the global shipping fleet consumed around 5.3m bpd – a little more than 5% of total oil demand – of which about 4m bpd would be non-compliant after Januaryn 1st 2020. Therefore, more than 3m bpd of that demand will disappear overnight, and the vast majority of the demand is expected to shift to low sulphur distillate fuel.
This could generate at least 1.5m bpd in extra demand for distillate in the next two to three years and a rise in the price of Marine Gas Oil, according to MABUX.
“Right now, we see that gas oil trades at a premium of about $250 per tonne more than heavy fuel oil, but the forward curve forecast is that it may rise to about $380 per tonne at the beginning of 2020,” said Sergey Ivanov, Director at MABUX, adding that “based on an average fuel consumption of 20 to 80 tonnes a day, a ship using compliant distillate fuel faces an extra expense of about $7,000 to $20,000 per day. That is what we expect in the beginning of 2020,” says Ivanov.
Currently ultra-low sulphur fuel oil (ULSFO) was available in Emission Control Area (ECA) 1 and rather popular in northern Europe with a sulphur content of 0.10%. The very low sulphur fuel oil (VLSFO) with 0.50% sulphur would be available later this year outside of ECA1, according to MABUX estimates.
Limited test deliveries of VLSFO arranged by oil majors in Amsterdam-Rotterdam-Antwerp (ARA), China and Singapore, at the moment offer a wide range of price indications and are not enough to make any real estimates.
“The 0.50% fuel is not physically in the market right now outside of ECA1. We have only futures with delivery time in December 2019. We do not have all the answers as to when, where and how much at this point, making it difficult to forecast what the exact margin will be between high sulphur fuel oil and very low sulphur fuel oil,” said Ivanov.
Based on discussions with MABUX’s main global bunker suppliers, the understanding is that the first regular deliveries of very low sulphur fuel oil (0.50%) to the global bunker market might be expected in the third quarter of 2019, he said.
Ivanov said that as of June MABUX had been informed of expected availability from four oil majors.
One has reported it will deliver very low sulphur fuel to 18 ports in the world, including the main hubs, and will continue to deliver non-compliant high sulphur fuel oil to 15 ports in the world. Another oil major will be delivering very low sulphur fuel to seven ports for now, with additional ports being announced later in 2019, and a third oil major has reported it will be delivering low sulphur fuel to 13 ports, including main ports. The last of the four majors has reported that it will deliver very low sulphur fuel to a very limited number of ports in Europe and three ports in Asia.
“This picture says that the question of availability of very low sulphur fuel is critical at this point. No-one is sure that there will be enough very low sulphur fuel available in all the main ports in the world. Eighteen, 13 or seven ports do not make a whole bunker market,” Ivanov said.
“In our view, shipowners are ready. Many are in a position now where they can say, ‘give me compliant fuel and I will adjust my power system, I will train my crew and start using it.’ But they need the compliant fuel and they cannot get that now. They do not currently have much choice. Many of them are ready, but the bunker market is not,” he said.