20|20 Marine Energy maritime consultancy stated that fears of a distillate shortage and lack of marine fuels matching the 0.5% sulphur emissions limit when the new regulations are implemented within the shipping industry could be misguided.
The International Maritime Organization’s (IMO) global sulphur cap of 0.5% for bunker fuel will come into force in 2020 or 2025, and will end the market dominance of conventional heavy fuel oil (HFO) as a bunker product, other than for vessels fitted with exhaust gas cleaning technology. This will significantly increase the demand for more expensive distillate and distillate-based products.
“Fuels largely based on distillates, including 100% distillates as well high percentage distillate-based blends will be the compliance solution of choice to meet the 0.5% global sulphur cap. However, the widespread concerns about there being enough distillate product to meet demand may be misguided,” said Adrian Tolson, Senior Partner, 20|20 Marine Energy.
“There is evidence to suggest to the contrary, based on the refinery upgrades taking place in the Middle East and India, as well as an anticipated increase in the uptake of scrubbers as the price differential between distillates and Heavy Fuel Oil becomes even greater,” continued Tolson.
The Hydrocarbon Processing Market Data Report 2016 states the Middle East will add approximately 1.5 MMbpd of new refining capacity by 2020 in order to meet the ever-growing demand for distillates. And in March 2016, India’s largest state-owned refiner Indian Oil Corp (IOC) said it had earmarked $26 billion for a five to seven year investment programme to expand and upgrade its existing refineries.
In terms of exhaust gas cleaning systems, the price of distillates will inevitably increase from today’s levels following the implementation of the global sulphur cap. This is based on an anticipated rise in crude prices over the next five years, as well as a run on demand for distillate products. As refiners look to create a market for HFO – a by-product which can only realistically be used within shipping, the price for HFO will decline even further from the current lows, making investment in scrubbing technology an even more viable compliance solution with short payback periods.
As well as this, 20|20 Marine Energy also believes that diesel use within the automotive and land-based industries may also decline, freeing up surplus product that could be directed to shipping.
Adrian Tolson continued:
“The world is starting to end its love affair with diesel. The United States and Asia are more committed to the gasoline/hybrid model, as well as the electric route, and even Europe is showing less of an appetite. There have also been signs that diesel is no longer as popular with the power generation industry, primarily due to CO2 emissions, and at the same time, alternative land power sources, such as solar energy and liquefied natural gas (LNG) are gathering momentum. However, refineries have been planning for diesel usage to continue at a predictable rate, and given this anticipated decline in certain markets, there will be surplus product that can be diverted to vessels within the shipping industry.”
Source: 20|20 Marine Energy
