IBIA presented a number of predictions as a main take out from its Annual Convention in Singapore and Platts Bunker Fuel Conference, illustrating what industry stakeholders consider we should expect, while heading into 2020.
Firstly, there is general optimism that refiners will have several options to produce marine fuels to achieve compliance 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). Refiners predict that the majority of 2020 demand will be met by VLSFOs rather than marine gas oil (MGO).
LNG is not seen as a major contributor to 2020 compliance, but more of a solution from 2025 onwards, as lack of infrastructure is considered as a main area of concern to define LNG market in the coming years. Predictions for LNG uptake in 2020 are mostly around 1% of total fuel consumption, according to IBIA.
In addition, predictions for the level of uptake of 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.
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.
Further, shipping companies may see improved market conditions as old tonnage could disappear because owners won’t spend money to install BWMS or scrubbers on ships older than 15 years. 2020 is expected as good for the tanker industry, as there will be a need to ship compliant fuels from regions with oversupply of distillates to those that are short, but less so for dry bulk/container segments.
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, IBIA noted.
Predictions for non-compliance with the global sulphur cap range 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. Shipping 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.
The views hereabove are individual or company views as resulted from delegates’ presentations and comments and should not be confused with an official “IBIA view”.
