As the International Maritime Organization (IMO) sulphur regulation date of 1 January nears, availability of the new, very low-sulphur fuel oil is moving in the right direction – although too slowly – high-sulphur fuel oil inventories are shrinking globally at ports, and demand for marine gas oil is about to rise significantly. Marine Bunker Exchange, MABUX, outlines what it expects in the first three months of the year.
The impact of the new sulphur regulation on the global bunker market and on the price of bunker fuel is starting to show, as players – from shipowners to ports and bunker suppliers – have less than one month left before the deadline.
Following the global bunker market closely, the emerging picture is becoming clearer, according to MABUX. It involves price hikes, regardless of whether ships have chosen scrubbers and traditional high-sulphur fuel, the new, very low-sulphur fuel oil (VLSFO), or marine gasoil (MGO) as the route to compliance.
“Neither demand nor availability of the new IMO 2020-complaint VLSFO is, at this point, completely clear. With less than one month to go, the questions of where and how much are still lingering,” says Sergey Ivanov, director at MABUX.
“We can see that the process is under way – the supplies of VLSFO are growing – but we believe they are not growing by the rate necessary before 1 January 2020.”
Major bunker hubs on track
While the major bunker hubs in northern Europe, the Middle East, Brazil, Argentina, US Gulf Coast, Panama, Oman, Qatar, India and Singapore will probably have sufficient availability of VLSFO from 1 January 2020, availability in other parts of the world could be an issue, Ivanov explains. This includes in African and some Latin American ports, the US West Coast, southern Europe, the Mediterranean, some ports in the Black Sea, and former Soviet Union countries.
“While VLSFO is increasingly emerging in the market, the majority of these products are still on trial. We are getting very close to 1 January and the product is still on trial in almost all of the ports that we believe will have enough VLSFO. Compatibility and stability are still issues,” Ivanov says.
While MABUX forecasts that VLSFO-compliant fuel will be the cheapest compliant fuel available in the first months of the year, the price will rise from where it is today because of a lack of availability in some areas. MABUX also forecasts that the biggest spike in demand – and so in pricing – will be for MGO, because of limited availability of low-sulphur blending material to make enough VLSFO. In addition, demand for high-sulphur fuel oil is dropping, and inventories worldwide are now shrinking, which may also result in upward price fluctuations.
“In the first months of 2020, the market will not have adjusted to the new supply and demand scenario, and there will not be quite enough VLSFO available in all parts of the world. So, some shipowners will be obliged to turn to MGO and the price will spike before settling again. In many ports, MGO will be the only compliant fuel available for a start anyway,” Ivanov says.
“We believe the most used avenue of compliance in the first months of 2020, until the market finds a new balance, will be MGO, followed by VLSFO a little further down the line.”
Because MGO is quite a traditional fuel for the global refining industry, refineries can increase volumes to meet a spike in demand without making big changes in processing or supply chain. So availability of MGO worldwide should not be a major problem, even if demand rises significantly in the first few months of the year – although availability could tighten during that transition period, Ivanov believes.
97 ports offering VLSFO for trials
According to MABUX data, 97 ports globally have VLSFO available for testing. Of these, 14 are in Brazil, 8 in Chile, 8 in India and 7 in Australia, leaving 60 ports in the rest of the world where compliant fuel is available for testing.
In Asia, Japan’s refineries are increasingly starting to produce VLSFO for the domestic market, with VLSFO on trial in ports such as Osaka. In China, the top four state-owned refiners have also started to produce VLSFO and could boost production capacity to 18 million metric tonnes per year in 2020, the data shows. VLSFO trials are also under way in Singapore and in some Russian ports, such as Novorossiysk.
In the Middle East, two ports, Fujairah, Qatar, Jebel Ali and Dubai – are currently offering VLSFO for trials, while, in northern Europe, trials are available in Saint Petersburg, Kaliningrad, Tallinn, Gothenburg, Amsterdam, Rotterdam, Antwerp, and in a number of German ports, according to MABUX. Also in southern Europe, the first signs of VLSFO are also emerging in Gibraltar, Malta, Spain and the Canary Islands, Greece and Portugal, while – in the Black Sea area – Istanbul and Novorossiysk are offering VLSO for trials.
In South America, only Brazil and Argentina, Chile and Colombia offer VLSO for trials at this point, while Panama, in Central America, has moved along with trials. First VLSFO trials have been reported in New York, Houston, Los Angeles and Vancouver in North America.
In Africa, the process of implementation of new low-sulphur blends is still rather slow. VLSFO trial lots are currently only available in a limited number of ports such as Lomé, Durban, Port Elizabeth and Port Louis.
“In general, the bunker market is starting to react – starting to provide different ports with trials of VLSFO – and, hopefully, these volumes will be significant enough to meet demand from shipowners, at least partially,” Ivanov says. “I don’t think demand will be fully compensated by supplies in the beginning of 2020, but the process is under way and moving in the right direction.”