IMO 2020

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Shipowners are ready, the bunker market is not

 

 

The number of ports in which low sulphur fuel will be available at the start of 2020 will be limited and the compliant fuel will be an expensive affair for shipowners, according to the Marine Bunker Exchange, MABUX.

The IMO sulphur regulation will not only change the daily life of the shipping industry, it will also bring drastic change to the refinery and bunker industry. According to MABUX, shipowners are ready but the bunker market is not, and reports from oil majors regarding delivery of very low sulphur fuel are concerning.

At the moment, MABUX estimates that the global shipping fleet consumes around 5.3 million barrels per day (a little more than 5% of total oil demand), of which about four million barrels per day will be non-compliant after 1 January 2020. Therefore, more than three million barrels per day of that demand will disappear overnight, and the vast majority of the demand is expected to shift to low sulphur distillate fuel.

This may generate at least 1.5 million barrels per day in extra demand for distillate in the next two to three years and a rise in the price of Marine Gas Oil, according to MABUX.

“Right now, we see that gas oil trades at a premium of about $250 per tonne more than heavy fuel oil, but the forward curve forecast is that it may rise to about $380 per tonne at the beginning of 2020,” says Sergey Ivanov, Director at MABUX.

“Based on an average fuel consumption of 20 to 80 tonnes a day, a ship using compliant distillate fuel faces an extra expense of about $7,000 to $20,000 per day. That is what we expect in the beginning of 2020,” says Ivanov.

The when, where and how much of compliant fuel

Right now, ultra-low sulphur fuel oil (ULSFO) is available in Emission Control Area (ECA) 1 and rather popular in northern Europe with a sulphur content of 0.10%. The very low sulphur fuel oil (VLSFO) with 0.50% sulphur will be available later this year outside of ECA1, according to MABUX estimates.

Limited test deliveries of VLSFO arranged by oil majors in Amsterdam-Rotterdam-Antwerp (ARA), China and Singapore, at the moment offer a wide range of price indications and are not enough to make any real estimates.

“The 0.50% fuel is not physically in the market right now outside of ECA1. We have only futures with delivery time in December 2019. We do not have all the answers as to when, where and how much at this point, making it difficult to forecast what the exact margin will be between high sulphur fuel oil and very low sulphur fuel oil,” Ivanov says.

Based on discussions with MABUX’s main global bunker suppliers, the understanding is that the first regular deliveries of very low sulphur fuel oil (0.50%) to the global bunker market might be expected in the third quarter of 2019, he says.

“Right now, we are having a lot of discussions with major oil companies presenting their schedules, their schemes on how they are going to deliver this new low sulphur fuel to the global bunker market,” says Ivanov.

Eighteen ports do not make a bunker market

Ivanov explains that, at this point, MABUX has been informed of expected availability from four oil majors.

One has reported it will deliver very low sulphur fuel to 18 ports in the world, including the main hubs, and will continue to deliver non-compliant high sulphur fuel oil to 15 ports in the world. Another oil major will be delivering very low sulphur fuel to seven ports for now, with additional ports being announced later in 2019, and a third oil major has reported it will be delivering low sulphur fuel to 13 ports, including main ports. The last of the four majors has reported that it will deliver very low sulphur fuel to a very limited number of ports in Europe and three ports in Asia.
“This picture says that the question of availability of very low sulphur fuel is critical at this point. No-one is sure that there will be enough very low sulphur fuel available in all the main ports in the world. Eighteen, 13 or seven ports do not make a whole bunker market,” Ivanov says.

“In our view, shipowners are ready. Many are in a position now where they can say, ‘give me compliant fuel and I will adjust my power system, I will train my crew and start using it.’ But they need the compliant fuel and they cannot get that now. They do not currently have much choice. Many of them are ready, but the bunker market is not,” he says.

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Thailand’s IRPC to start selling 0.5% sulfur fuel oil cargo from July

 

 

Thailand’s oil and petrochemical company IRPC Public Co. Ltd. plans to start selling low sulfur fuel oil cargo with maximum sulfur of 0.5% from its Rayong refinery from next month, company sources said Monday.

This move is in line with the new regulation by the International Maritime Organization, which will implement a new sulfur cap of 0.5% from January 2020, the sources said.
IRPC will produce 0.5% sulfur fuel oil at its own refinery with a capacity of 215,000 b/d in Rayong. The refinery will optimize its desulfurization unit at Rayong refinery to produce 0.5% sulfur bunker fuel, one of the sources said. It will sell about 20,000-30,000 mt of low sulfur fuel oil in July to a local bunker supplier, the company sources added.

IRPC also considers increasing the sales volume in coming days depending on the optimization of the desulfurization unit and demand, one of the sources said.

They are still negotiating on the price of the cargo, while they are likely to use S&P Global Platts 10 ppm gasoil assessments as a pricing basis, the sources added.

The company has been selling about 20,000 mt/a month of 3.5% fuel oil cargoes to local bunker suppliers. It will continue to sell the same fuel oil as demand seems to remain there, but the company will gradually reduce sales volume of 3.5% bunker fuel and shift to 0.5% sulfur bunker fuel, according to a source.

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IMO 2020: Fundamentals to Rule Product Tanker Market Soon

 

The turmoil in the shipping and fuel markets from the IMO rule is bound to settle down, sooner, rather than later. This will allow for the fundamentals to take over again and determine the future course of the freight rate market. In its latest weekly note, shipbroker Gibson said that “as we noted in our report dated 7th June, the slowing global economy, partly driven by the ongoing US-China trade war is starting to impact on world oil demand. An increasing number of agencies are factoring in an increased risk of an economic downturn into their projections. In May, the OECD lowered its forecast for global economic growth to 3.2%, whilst the Netherlands Bureau of Economic Policy Analysis recently claimed that world trade had fallen back to its slowest growth rate since the financial crisis. Fitch Ratings Agency was even more bearish, trimming its 2020 growth rate to 2.7% owing to persistently weak Chinese consumer spending and the impact of the US-China trade war. The Agency has warned that growth could be as low as 2.4% if President Trump follows through on his threat to place tariffs on a further $300 billion of Chinese imports, further undermining trade growth. America is not immune either; the New York Federal Reserve’s gauge of business growth in New York State posted a record fall this month to its weakest level in more than 2.5 years, suggesting an abrupt contraction in regional activity. As a result of these headwinds, the IEA has again revised down its assessment for world oil demand, which is now estimated to grow by 1.2 mbd in 2019, with further downside expected if the US-China trade war escalates”.

According to Gibson, “slower demand is evident in the persistent weakness in crack spreads as fears of an economic slowdown grow. Naphtha has had a torrid year so far. Seasonality has of course played a role, with cracker maintenance impacting on short term demand, whilst competition from abundant LPG supply is also weighing on demand. But it is now evident that the persistently bearish economic news is now impacting on forward demand for petrochemical products, keeping naphtha cracks under pressure. Some recovery in naphtha demand will emerge, particularly considering peak cracker maintenance is nearing its end and new capacity is currently being brought online. However, whether cracks can move to more sustainable levels may well depend on the outcome of trade talks and whether the economic headlines improve. It is also worth noting that most of the petrochemical projects set to start next year have been designed to process LPG or Ethane, limiting the demand growth for naphtha as a petrochemical feedstock”.

 

The shipbroker added that “unsurprisingly, the distillate market is also feeling the pressure. Given the fuel has mostly industrial uses, it is also sensitive to similar economic factors as naphtha. However, distillate demand will find support from seasonally strong demand for jet fuel during peak travel season. The diesel market is expected to receive a boost in the later stages of 2019 and into 2020, giving the market a more positive near term outlook. Indeed, the IEA forecasts that distillate demand will increase by 1.2 million b/d in 2020 as the shipping industry shifts to cleaner fuels, which should support crack spreads”.

Gibson concluded that “the potential impact on shipping demand could be significant. Although crude runs are still expected to rise substantially in the second half of 2019, they have already been revised lower by the IEA. For naphtha, demand will remain constrained by economic factors, potentially impacting on long haul runs from the West and the Middle East into Asia. Distillates trading should prove to be one of the few bright spots, with IMO2020 giving a booster shot just as industrial demand cools. However, as the 2020 dust settles, the underlying fundamentals will emerge as the dominant factors once again. The Trump-Xi meeting at G20 next week will be a key gauge of the future commodity market direction”.

 

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Fuel cost for ships to increase up to 50% in only 200 days from now

 

In less than 200 days , the mandatory IMO regulations to reduce sulphur emissions from ships, also known as Low Sulphur Cap, will be implemented. These regulations will increase fuel cost for most ships, with up to 50%. It creates a direct need for fuel efficiency for ships.

Ninety percent of all trade worldwide is carried by ships. These ships use vast amounts of fuel, up to 100,000 litres per day. The new regulations will lead to additional annual costs of several millions of dollars per ship, starting on January 1st, 2020.

 

 

Real time fuel consumption monitoring

Almost all shipping companies and charterers still use Noon data – reported once a day – as their main source of management information, while most of them agree it is a lagging indicator, characterized by high potential for human error due to manually observed and reported average values.

We4Sea, a maritime technology company focussed on increasing the fuel efficiency and lower the emissions of seagoing ships, has now released a new update of their online software platform. The update is a next step in their mission to provide shipowners and ship charterers with improved analysis tools, and replace outdated noon-reports as the main source of management information.

No need to install on-board monitoring equipment

We4Sea’s technology allows that any ship can be monitored on fuel consumption and emissions, and does not require any on-board monitoring equipment. The software solution supports full transparency in fuel consumption of ships, and can be used to optimize fuel efficiency and reduce emissions.

Digital Twin uses big data analysis to monitor ships

We4Sea collects vast amounts of operational satellite data of ships, such as position, draft, speed and heading. This data is enriched with other data sources, such as data on weather conditions, wave heights, currents and wind. The proprietary Digital Twin technology of We4Sea enables the building of a digital sister vessel with all relevant technical characteristics of the real vessel which is capable of transforming this big data pool into actionable management information.

 

Up to 20% fuel savings

We4Sea’s software module has been developed with a focus on charterers, that do not have direct access to the vessel and do not have the option to install monitoring equipment.
In addition, other stakeholders such as financiers or banks can now continuously monitor the CO2 emissions of their financed assets in real-time via an on-line dashboard.
In pilot projects, We4Sea has proven that using data analysis can substantially cut fuel costs, up to 20%.

Our in-house technology uses satellites and artificial intelligence to report individual ship fuel consumption, something that will have opportunities for owners, shippers, charterers and regulators alike. All parties can benefit of an unprecedented transparency of fuel efficiency reporting, helping them to reduce bunker costs.

– Michiel Katgert, CTO of We4Sea:
“High-resolution monitoring and reporting is the first step in improving fuel-efficiency. We have made it simple: we only need an IMO number to start monitoring a ship. Monitoring and optimizing fuel-efficiency will not only have a direct impact on financial results, but it will also improve the sustainability of their operations and lead to a reduction of CO2.”
Source: We4Sea

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Singapore delivered 0.5% bunker term prices on steady rise in lead-up to IMO 2020

 

Singapore delivered bunker term contract prices for 0.5% marine fuel have been rising steadily since debuting in February, outpacing expectations in some cases, as the industry gears up for the new 0.5% sulfur limit in 2020, market sources said this week.

 

Bunker term prices for delivery in the fourth quarter and Q1 2020 in Singapore have been inked at higher levels over April-June than in Q1 as demand steadily increases and low sulfur fuel blending stock prices rise, the sources said.

Term prices in Q2 have been concluded at discounts of around $40/mt to the Mean of Platts Singapore 10 ppm gasoil in June on a delivered basis, narrowing from $50-$100/mt for contracts signed in Q1, the sources said.

"Some shipping companies came out to buy 0.5% sulfur bunker fuel recently as they were not sure if they could secure the bunker fuel in Q4 and Q1," a source at a shipping company in Asia said.

"The market is expecting a surge in demand [for low-sulfur bunkers] from September, though some shipowners have already expressed interest for term," a Singapore bunker trader said.

"Some shipowners have also started taking small parcels for trials and vessel testing, and we expect prices to trend up gradually when more demand emerges," the trader added.

CHINA REGULATION SPURS DEMAND

China introduced its own regulation to cap sulfur content in bunker fuel at 0.5% in January this year. At first, ships used marine gasoil, market sources said. The price of blending stocks to produce 0.5% sulfur bunker fuel jumped at the same time.

"Demand for 0.5% bunker fuel in China has increased because some shipping companies have finished cleaning [bunker] tanks [in their ships]," the source at a shipping company in Asia added.

In its latest tender, Thailand Bangchak sold 30,000 mt of vacuum low sulfur waxy residue with maximum 0.3% sulfur for loading over June 26-28 from Sriracha at a premium of around $100/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessments, FOB, S&P Global Platts reported earlier.

The premium for the LSWR cargo for loading in H2 March was in the $50s/mt to MOPS 180 CST HSFO.

"It is no longer possible to get earlier prices [offered in March and April]," a shipowner who takes bunkers at Singapore said.

Traded differentials for Australia's heavy sweet crudes rose to record highs for the June trading cycle on strong demand from end-users for low sulfur fuel oil blending, Platts reported earlier.

Due to surging blending stocks prices, the premium for Marine Fuel 0.5% to the Mean of Platts Singapore 380 CST high sulfur fuel oil assessments hit a historical high of $135/mt on June 4, Platts data showed.

Singapore is the world's largest bunkering hub, with bunker sales volumes totaling 49.8 million mt in 2018, according to data from the Maritime and Port Authority of Singapore.

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US-led effort to limit IMO 2020 compliance would not cut fuel prices

US refiners, producers say they are ready for IMO 2020

White House reportedly had concerns about price spikes

EIA sees rule boosting Brent crude prices by $2.50/b

 

 

A US-led defection from next year's tougher international marine fuel sulfur standards would be difficult, if not impossible, and would not lead to lower domestic fuel prices, according to a study released Wednesday by a group of US oil and gas producers, refiners, shippers and trade unions.

 

Charles River Associates conducted the study for the Coalition for American Energy Security, which formed to lobby US lawmakers about the benefits of the International Maritime Organization's 0.5% global sulfur cap on marine fuels starting January 1, from the current 3.5%.

"The US is well positioned to support the global shift to lower sulfur marine fuels, both at the refinery and crude production levels," the study said. "Global refiners and shippers have had many years to prepare, and it appears the industries are driving toward a transition with minimal price disruption or fuel availability issues."

In October, the White House was reportedly considering ways to delay the rule on concerns that it would cause retail gasoline and diesel prices to spike in the middle of President Donald Trump's re-election campaign.

The Trump administration cannot likely delay the IMO rule at this point, but the study raises the possibility of a US-led effort to reduce global compliance.

S&P Global Platts Analytics sees the spec changes as the "most disruptive event to hit the refining sector in decades," requiring a major shift in the structure of global bunker fuels and initially displacing about 3 million b/d of HSFO. Analysts expect middle distillates cracks to surge and gasoline cracks to stay firm.

DEMAND FOR LIGHTER CRUDES

The Energy Information Administration expects the IMO rule to boost Brent crude prices by about $2.50/b as a result of higher demand for light sweet crudes. "However, EIA expects broader global crude oil market conditions to have more significant effects on Brent prices than IMO regulations," EIA said in a March report.

EIA sees US retail regular-grade gasoline prices averaging $2.67/gal in the first quarter of 2020 with diesel prices averaging $3.23/gal -- both up from the Q1 2019 averages of $2.36/gal for gasoline and $3.02/gal for diesel, according to the latest Short-Term Energy Outlook.

Rapidan Energy Group expects the IMO rules to "spark upheaval in the distillate market" and "possibly provoke political intervention from the Trump administration," it said in a note earlier this year.

The refiner-commissioned study said the IMO rules benefit countries that produce light sweet crudes, such as the US, while negatively affecting heavy sour producers like Saudi Arabia, Russia, Iraq, Iran, Venezuela and Canada.

"Therefore, the opposite can be said of a move to partial IMO [compliance], as the higher demand for HSFO and lower value of low sulfur fuels lead to a decrease in the value of US crude oil," the study said.

In April, 14 Republican US senators, including those from top oil and refining states Louisiana, Oklahoma and North Dakota, urged Trump to let the marine fuel sulfur standards take effect without interference, arguing that US refiners and the US trade balance both stand to benefit.

"Any attempt by the United States to reverse course on IMO 2020 could create market uncertainty, cause harm to the US energy industry, and potentially backfire on consumers," the senators said.

[Refman + 207]

I've heard many differing things about US refiners claims to be ready. One of the biggest problems will be comparability between bunkers sourced from different suppliers.

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5 minutes ago, Refman said:

I've heard many differing things about US refiners claims to be ready. One of the biggest problems will be comparability between bunkers sourced from different suppliers.

More or less  they will all have to be within the sulphur range otherwise no go. I have seen the releases from Chevron, Shell and  others who say they are ready.

[Refman + 207]

Yes they will all meet the 0.5% sulfur cap, but you can make mix two perfectly good 0.5% fuels together and they will fall apart and cause a lot of sediment and sludge that overwhelms the ships capacity to deal with it. So while refiners say they are ready, they technically are, but will their fuel behave nicely with somebody else's fuel, that's the big question. Exxon has guaranteed no problems with the caveat that you only burn Exxon supplied fuel, and I believe some of the other refiners are offering the same deal.

 

202 is going to be mighty interesting.

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12 minutes ago, Refman said:

Yes they will all meet the 0.5% sulfur cap, but you can make mix two perfectly good 0.5% fuels together and they will fall apart and cause a lot of sediment and sludge that overwhelms the ships capacity to deal with it. So while refiners say they are ready, they technically are, but will their fuel behave nicely with somebody else's fuel, that's the big question. Exxon has guaranteed no problems with the caveat that you only burn Exxon supplied fuel, and I believe some of the other refiners are offering the same deal.

 

202 is going to be mighty interesting.

Blending the proper way will reduce that risk, however, just like "branded" gasoline , I would imagine there may also be fear and marketing hype that you cant mix my XOM fuel with Shell or a private refiner's fuel of the same specs for the same grade. That is why they are called fungible.

[Refman + 207]

I've already seen ships trying these new blends and some have ended up with clogged filers and centrifuges because of two fuels separating when mixed.

Who does the poor ship owner turn to when they load bunkers from supplier A on top of bunkers from supplier B and they turn out to be incompatible. Both may have been perfectly fine on their own and met every Bunker Spec provided, but they just don't get along well with each other.