OUTLOOK '19: Shipping one-year countdown to low-sulphur fuel

Source: ICIS News


HOUSTON (ICIS)--The new year begins a countdown on one of the most challenging shipping regulations in decades, the imposition of a much lower global sulphur content in marine fuel being imposed by the International Maritime Organization.

On 1 January 2020, the International Marine Organization (IMO) will require that fuel oil sulphur limits on marine fuel be reduced to 0.5% from 3.5%.

Shippers say the problem with the low-sulphur fuel is that there is not enough of it now, making it hard to find and thus much more expensive. US brokerage SPI recently estimated that complying with the new low-sulphur regulations will cost shipowners $15bn a year.

Shippers have only three options.

They can install costly scrubbers that will probably cost millions. They can shift to costlier low sulphur fuels such as marine gasoil (MGO), very low sulphur fuel oil or alternative fuels such as LNG or methanol, raising the current cost of conventional bunkers by at least 50-70%.

Or shippers can take their chances and do nothing and risk the consequences.

Installing emission control systems on ships, otherwise known as scrubbers, will wash the sulphur particles into the sea. This seems the most costly option, with the average price of a scrubber system running $2-4m, according to US broker SPI, though some cost as little as $1.2m and some run as high as $6-7m.

It will take about five to six years on average across all benchmark vessel sizes to pay off an investment in scrubbers, according to a report by Eastport Research and Strategy.

Container giant Maersk has said it will install some vessels with scrubbers. But for chemical shipper Odfjell, which owns and operates 85 chemical tanker vessels, installing scrubbers is not practical.

Odfjell CEO Kristian Moerch said the company’s fleet spends around half of its time in ports, so adding scrubbers is pointless. Moerch added that 60% of Odfjell’s revenues are covered by customer contracts with bunker adjustment clauses, which provide compensation for any rise in bunker prices.

But Moerch discussed the larger issue that shippers had the responsibility for making the fuel switch.

"Fundamentally, I really don't see why the shipping industry should solve a problem the oil industry have. Everything comes back to if you believe this spread of $300 (of high sulphur fuel oil vs low sulphur fuel oil) will stay or not."

Paying the higher fuel cost appears to be the lowest upfront cost option and, at this point, the choice of the majority of ship owners, according to a recent study by Bank of America analysts.

Switching to MGO or ULSFO fuel would require little or no vessel modification, the analysts said. Filling up with the higher-priced MGO instead of industry standard Marine IFO 380 fuel entailed paying an average 62% more for the fuel in the four major Americas chemical ports at the end of 2018, and that’s without figuring in what increased demand a year from now will actually do to the cost of the fuel.

Source: ICIS, Bunkerspot

Methanex chairman John Floren, whose company owns a fleet of 19 vessels that move methanol around the globe, said in a conference call that buying the more expensive fuel appears to be the most likely option at this point.

“We believe most ship owners are just going to switch to ultra-low sulphur diesel to start with until they see how markets pan out,” Floren said.

Focus article by Lane Kelley

ICIS US Outlook Seminar 2019

Register for your complimentary place at the ICIS Outlook Seminar on 30 January in Houston, Texas. Join our market experts as they cover the key developments, potential growth opportunities and future trends in the petrochemicals and polymer markets. Secure your place now.