IMO 2020: The transition is underway!
Supply of bunker fuels meeting the 0.50% sulphur limit is now increasing rapidly and is outstripping demand in many locations, IBIA’s Director, Unni Einemo, told a Symposium on IMO 2020 held at the London headquarters of the International Maritime Organization on 17 October, 2019.
She said the “IMO 2020 effect” is now causing market disruption as the bunker industry prepares for the global low sulphur rule taking effect on 1 January 2020.
Supply of very low sulphur fuel oil meeting the 0.50% sulphur limit (VLSFO) has been announced with increasing frequency, in particular since late September. VLSFO is already available in various locations across Asia, Middle East, Africa and the Americas as of mid-October with more and more becoming available, either during October or during November/December.
Actual VLSFO demand from bunker buyers, meanwhile, has not been as high as anticipated so far. IBIA members active in supply, trading and brokering services have reported many enquiries about availability, but very low volumes of actual VLSFO bunker stem fixtures up to mid-September. Some estimated actual VLSFO demand at around 1% a month ago, but both supply and demand are now increasing rapidly.
There are regional variations both for supply and demand and it isn’t always well matched. During the first half of October, supply of VLSFO has been outstripping demand in many locations. Suppliers think this is because ship operators who initially signalled that they wanted to start bunkering VLSFO from October are now postponing their purchases into November/December.
The market disruption caused by the transition to IMO 2020 is evident as the supply side has begun running down stocks of high sulphur fuel oil (HSFO) and preparing storage tanks for low sulphur fuels. Moreover, barges that have been carrying HSFO are being taken out of service to be readied for supply of VLSFO or marine gasoil (MGO). At the same time, suppliers and traders are reluctant to replenish HSFO stocks as they anticipate rapidly declining demand for it toward the end of 2019, a trend that has been exacerbated by price backwardation.
This reduced supply capacity comes at a time when shipping still needs fuel, and the vast majority of bunker demand is still for HSFO. This has caused a tightening of prompt supply of HSFO in some markets.
IBIA’s Einemo told the Symposium on IMO 2020 that most suppliers have focused on providing VLSFO to meet demand for compliant fuels in 2020, but explained that some suppliers and locations will only offer MGO, typically product meeting the 0.10% sulphur limit that applies in emission control areas (ECAs). MGO is, of course, also compliant with the 0.50% sulphur limit which bodes well for global availability as MGO is available almost everywhere today. She cautioned, however, that a few locations are expected to have very limited or no availability of compliant fuels at times.
In her concluding remarks, Einemo said that availability of both compliant fuels and HSFO could be unpredictable for a while as the transition to IMO 2020 continues to pick up pace. Suppliers in major ports are expected to continue to offer HSFO for ships equipped with scrubbers, but leading up to the end of the year HSFO could disappear from some ports or be in limited supply.
“The transition to the 0.50% sulphur limit will cause disruption and more volatility than usual for a while but the market will eventually adapt,” she told the Symposium on IMO 2020.