EPCA '18: Cheap bunker fuel post-2020 out, shippers to rely on oil majors - Hapag-Lloyd

12 October 2018 11:19 Source:ICIS News

LONDON (ICIS)--Haggling for cheap fuel may no longer be the top concern for shippers who consider access to correct fuels and compatibility between them as paramount for guaranteed performance on the high seas, with oil majors in the spotlight to cater to their demands with a "hybrid" fuel, an executive at shipping major Hapag-Lloyd said this week.

China Hong Kong Shipping Regulations - Jul 2015Cheap bunker fuel can no longer be the main driver behind purchasing decisions in the short term, suggested Jorg Erdmann, Hapag-Lloyd's senior director of sustainability management during the European Petrochemical Association (EPCA) annual meeting.

The shipping industry will be forced away from its practice of picking fuel based purely on price after 2020, when new International Maritime Organisation (IMO) rules click into place, said Erdmann.

Compatibility will continue to be a major concern, he suggested, while shipping firms look to oil majors for new low sulphur fuels in 2020 in the hopes of a global supply after 2020, as vessels will need fuels containing 0.5% or less sulphur.

It comes amid anecdotal comments during EPCA suggesting that both shippers and oil majors are expecting the other to lead the way.

“The shipping industry is used to work with brokers to get the cheapest fuel [at] Houston, Rotterdam, Singapore. Many of us also [bunker] in Russia because [the] crude is sweet and has already a low sulphur content,” said Erdmann, speaking to reporters.

Ready availability has been a concern for some, but Erdmann implied this may only be a concern for further afield destinations such as “the southern tip of Argentina” and that compatibility was a bigger issue.

“When you blend, you mix two different types of fuel which need to be compatible… This is the challenge, not the supply… [The] big hubs will provide enough fuel oils.

“The other issue is compatibility… the cheapest is not possible anymore,” added the executive at the shipping company.

A "hybrid" fuel is on the cards, and the process of making such a fuel is "not rocket science", he said, though for "only those refineries who have invested" in complex processes.

Oil majors are "preparing themselves to slowly drive down their storage tank in order to be prepared to mix" products to create a hybrid fuel, where residual fuel oil is mixed with a distillate and then blended to reach the required 0.5% sulphur level.

Another theme which emerged from Erdmann's press conference was that lack of a global fuel standard could prompt buyers to rely on oil majors with a global reach.

“There is no ISO standard, no specification yet, so each oil major is doing their own blending … As long as there is no specification the tendency seems to go with one of the world majors,” said Erdmann, pictured.

His comments may be a disappointment for those in the methanol sector who have eyed the low sulphur changeover as a possible growth opportunity.

“Methanol is not available now in enough quantities. We use 4m tonnes in fuel every year, even if we got the quantity by a supplier, we need to have it in the hubs Singapore, Houston, Rotterdam.”

In contrast, he added: “LNG [Liquefied natural gas] for the mid-term is the way to go. Downstream LNG is the challenge.”

Hapag-Lloyd is a cargo container shipping line with a fleet of 226 ships, plus subsidiaries including a cruise line.

The EPCA meeting ran in Vienna on 8-10 October.

Picture sources: Jerome Favre/Epa/REX/Shutterstock and Hapag-Lloyd

Additional reporting by Jonathan Lopez

By Vicky Ellis