What to expect when the global bunker market heads into 2020 was discussed in detail both at IBIA’s Annual Convention in Singapore in November and at the Platts 6th Annual Mediterranean Bunker Fuel Conference in Athens at the end of November/early December. IBIA’s IMO Representative took part in the Platts event, presenting an update on what is happening at the International Maritime Organization with regards to the implementation of the 0.50% sulphur limit in 2020.
Having listened to the various presentations, questions and comments from speakers and delegates on the subject at both events, here are some of the views and themes that emerged. These are individual or company views and should not be confused with an official “IBIA view”.
Compliance solutions & availability
There is general optimism that refiners will have several options to produce marine fuels to comply with the 0.50% sulphur limit and that it will be made available. These fuels will be a mix of relatively familiar marine distillate fuel grades and other products generally referred to as very low sulphur fuel oil (VLSFO). VLSFO can be a mix of distillates and high sulphur fuel oil (HSFO) and other blend components, or refiners can switch to use sweeter crude slates that will yield residual fuels that are compliant (or close to compliant) VLSFOs. Increased use of vacuum gas oil (VGO) is also expected and potentially increased use of HSFO desulphurisation technologies.
Refiners predict that the majority of 2020 demand will be met by VLSFOs rather than marine gas oil (MGO) and that we will see more VGO find its way into the marine fuels market. Some are still warning, however, that the increased demand for distillates in 2020 will cause pressure on overall refinery ability to meet global demand for low sulphur products in all sectors, including automotive fuels. Also, low sulphur crudes are expected to go up in price and overall it may be cheaper to scrub sulphur at the ship stack rather than stripping it out of HSFO at refineries. Finally, refineries will sell their products streams to the markets that yield the best returns; that may be the marine fuels sector, but it may be somewhere else.
LNG is not seen as a major contributor to 2020 compliance but more of a solution from 2025 onwards. Predictions for LNG uptake in 2020 are mostly around 1% of total fuel consumption. As for abatement technology – see below.
EGCS/scrubber uptake & HSFO supply
Predictions for the level of uptake of exhaust gas cleaning systems (EGCS), or scrubbers, by 2020 is down from more than 10% of total fuel consumption last year to less than half of that at present. But it is expected that a high price differential between compliant low sulphur fuels and HSFO will cause it to accelerate post-2020. Consultants and scrubber manufacturers have pointed out that there will be plenty of spare shipyard capacity to retrofit ships with scrubbers shortly, and that payback time would be very quick for those that have them in place in 2020 when the price differentials between LS fuel and HSFO are expected to be at their widest. Some predict the price differential could exceed $400 per tonne, others think it may be above $300 but below $400 – however it will also depend on the price of crude at the time.
A consequence of this low level of demand is that the supply infrastructure may disappear outside major ports, as suppliers cannot justify maintaining segregated barge and storage capacity for HSFO if they have no guarantee of steady demand.
Shipping companies may see improved market conditions as old tonnage could disappear because owners won’t spend money to install ballast water management systems – another IMO regulatory requirement – or scrubbers on ships that are older than 15 years.
There is optimism that 2020 will be good for the tanker industry, but perhaps less so for dry bulk/container segments. Product tanker rates could be boosted as there will be a need to ship compliant fuels from regions with oversupply of distillates to those that are short. We may see a number of tankers, even VLCCs, shift from dirty to clean product transport.
Old refineries with limited ability to upgrade and reduce HSFO output are expected to suffer, whereas refiners that can produce compliant fuels may see good refining margins. Bunker suppliers may benefit from improved sales margins though higher bunker prices (as compliant fuels cost more than HSFO) will require companies to have access to significant credit facilities.
Fuel quality concerns and ISO 8217
Focus is now increasingly shifting from sufficient avails to fuel quality and operational issues and there are widespread concerns about the stability reserves of VLSFOs as these products will in some cases be the result of “extreme” or “inappropriate” blending. Unstable fuels can be produced either onshore or inadvertently in ship tanks due to incompatibility between different product batches.
Oil majors with bunker market involvement are confident that they can produce stable VLSFOs but it is feared some fuel blenders will produce problematic fuels. Flash point is a concern with some blend components but as any fuel not meeting the SOLAS minimum is not viable to sell, this is not expected to be a major issue. Some believe that the increased use of blend stocks which we saw when fuels were blended to meet a 1.00% sulphur limit in the past could reintroduce catalyst fines to the end products.
In general, VLSFO density and viscosity is expected to me much be lower than in today’s HSFO bunker fuels, but not low enough to be classified as a distillate product under ISO 8217.
Work is underway at the technical committee overseeing revisions of the ISO 8217 marine fuels standard to see what can be done to address the anticipated fuel quality concerns. While the ISO standard can never guarantee compatibility with other fuels, they are evaluating whether it is possible to address stability by introducing new parameters to prevent fuel instability. Efforts are also underway to find better methods and criteria to evaluate fuel stability/compatibility in light of the diverse fuel formulations expected.
Cold flow properties will be a key parameter to watch as some distillate fuels, or fuels resembling distillates, may be very high in paraffinic wax which means they need to be kept in heated fuel tanks to prevent the wax from solidifying.
Risk of non-compliance, transitional issues and enforcement
Predictions for non-compliance with the global sulphur cap vary, ranging from as high as about 30% in the first year or two due to a lack of effective enforcement, to as little as 5-10%. Major oil companies are generally presenting an optimistic compliance forecast.
In effect, the only justifiable reason for a ship to carry non-compliant fuel after 1 January 2020 is either having abatement technology onboard or a non-availability situation.
One of the items on the agenda for IMO to deal with the transition to the 0.50% sulphur limit is to develop a standardised format for reporting non-availability. Another item on the IMO’s agenda is a proposal to ban carriage of non-compliant bunker fuel on ships without approved abatement technology fitted.
Shipping industry organisations are supportive of the carriage ban, but concerns have been expressed about what might happen if ships receive a “sulphur off-spec” fuel from the supplier, as well as a situation in early 2020 and in the aftermath of a non-availability situation, when residues of HSFO in their fuel systems may contaminate an otherwise compliant fuel so that it is marginally above the 0.50% sulphur limit.
IBIA, which has consultative status at the IMO, will be taking part in discussions at the IMO Sub-Committee on Pollution Prevention and Response in February on what the IMO can do to address these issues.
Report by Unni Einemo