Conference takeaways: Platts 8th Annual European Bunker Fuel Conference

The theme for this conference, held in Rotterdam on 17-18 of May, was “The road to 2020 – emissions impossible?” but it also covered a range of other subjects with quality speakers. The event was expertly chaired by Robin Meech of Marine Energy and Consulting Ltd, IBIA’s current chairman.

Here are some of the main takeaways:

• The 2020 global sulphur cap is a significant disruptive factor and we will need innovative solutions on a case-by-case basis – there is no ‘one size fits all’.
• Oil majors will provide a range of fuel solutions for 2020, including oil-based fuels, LNG as well as HSFO to ships using scrubbers, though the latter could disappear from some ports around the world.
• Traders will blend 0.50% sulphur VLSFOs, which will have to go from a non-existing product to up to 2-3 million barrels per day in 2020.
• LNG as fuel is still an emerging market and needs to become more competitive to be attractive. While the base product is very competitive the cost of supply infrastructure is very expensive and logistics cost optimisation is key to making LNG use more widespread.
• We are seeing disintermediation – the removal of intermediaries from the supply chain and the rise of commodity traders, regional refineries and to some extent oil majors in the supply chain. 2000-2014 was the era of the bunker trader, with brokers and smaller independent suppliers in decline, but this is changing since the OW collapse. 2015-2020 is the era of commodity traders, with traders and independents in decline.
• The trend is for bunkering companies to become bigger as only those that are well-funded will be able to provide credit, which a struggling shipping industry still needs. They must also be highly productive and have a high turnover because profit margins are down. 2020 may break the cycle of declining profit margins.
• The IMO’s 2020 decision is final and won’t be moved. There was huge political pressure to go for 2020 and any attempt at delay won’t be accepted. The IMO will work on implementation measures but it is too late for any regulatory changes to be in place by 2020.
• The volume of fuel involved globally in 2020 is huge and while market signals triggers refinery investments, there is a big gap in anticipated distillate output versus demand expectations. Refinery sulphur recovery capacity must rise by about 15% from today in 2020 to meet low sulphur fuel demand for shipping. By comparison, the EU reduction of the sulphur limit for gasoline to 10 ppm required a 2-3% increase, and the 0.10% ECA sulphur limit required less than 2% increase in refinery sulphur recovery capacity.
• All the big Russian heavy fuel oil exporters are upgrading refineries to make more distillates – this has been going on since 2015 so Russian HFO exports are in decline. Meanwhile, Iraq has increased exports of HFO from around 50,000 tonnes per month in 2016 to 200,000 tonnes per month in 2017.
• The outlook for the bulk sector is moderately optimistic for the first time in many years, helped by recent uptick in demand, and fleet growth has slowed down with scrapping of older ships encouraged by regulations for installing ballast water treatment systems.
• Every time sulphur regulations change there has been an associated spike in off-specs. For the 0.10% sulphur limit, there was a drop in off-specs for HFO but there has been an increase in bunker alerts for distillates, mainly relating to flashpoint.
• Low sulphur distillates will be available from the Middle East refining sector. Compliant fuels will be available but not always in the right place and smaller ports may have periods of no avails.
• Mandatory mass flow metering in Singapore has led to approximately 25% increase in efficiency as the estimated time saving is 3 hours on a 2000 tonne delivery. It appears to have had a positive impact on sales volumes with Singapore bunker sales predicted to reach 50 million tonnes in 2017.
• There are significant doubts that the 0.50% sulphur cap be enforced effectively globally. Part of the problem is that not all coastal and flag states are Annex VI signatories. Lessons from the 0.10% sulphur limit in ECAs suggest that the legal system was not prepared, inspectors not educated, and detection systems not fully developed until a year after the implementation date.
• Investigations of the best options for compliance indicate that scrubbers give the lowest cost for the big consumers, i.e. large vessels with large engines. For ships with fuel consumption below 10,000 tonnes per year, 0.50% fuels may be more cost effective. For LNG to be competitive against scrubber installations, it has to be cheaper than HFO at the point of delivery to ship.
• If Rotterdam starts building stocks to prepare for the 0.50% sulphur limit on 1 September 2019 there would need to be a build-up of 1 million barrels per day to have sufficient products in place by 1 January 2020. This would be very tight and as the port has never had to deal with something on this scale before it is hard to tell if 3 months is sufficient to get ready.

There will be a report from the Platts conference in the autumn issue of IBIA’s official magazine, World Bunkering, which will also be distributed at IBIA’s annual convention in Singapore.