Viewpoint: New fuels coming for European marine use
New fuels compatible with the International Maritime Organisation's (IMO) 0.5pc marine fuel sulphur cap should become more prevalent in the first half of 2019, with shipowners eager to gain operational experience.
The IMO regulation will cap sulphur content in bunker fuel to 0.5pc starting on 1 January 2020, down from 3.5pc today. Shipowners are still seeking insurances regarding fuel compatibility between different 0.5pc blends, and with marine gasoil (MGO).
The efficiency, stability and safety of the fuels remain a concern, although refiners — including Shell, Total and Italy's Eni — have started to offer 0.5pc fuels for testing. Total and container liner CMA CGM have struck a deal for the supply of marine fuels including 0.5pc grade, and tests have begun.
Some shipowners are reluctant to pay the premium to high-sulphur fuel oil (HSFO) asked by suppliers before the 2020 deadline. Some also fear that testing new fuels could damage vessels. And the fact that owners who have already tried some of the fuels cannot report the results because of non-disclosure agreements keeps the market in a fog. This is likely to mean that smaller owners will use MGO until the new fuels' specifications become clearer, although the middle distillate could carry a $100-150/t premium over 0.5pc fuels in 2020.
While shipowners are largely in the dark about availability and specifications of 0.5pc blends, major bunker suppliers still do not know what refineries are going to produce, making it difficult to plan storage space. A wider range of new 0.5pc fuels should become available in the next six months, but this leaves little time before the sulphur cap comes into force.
Scrubber-ready fleets are the most prepared for 2020, as HSFO is a familiar bunker fuel. But owners will also need assurances of supply.
Scrubbers remove sulphur from exhaust fumes and allow ships to continue burning HSFO. Ships with scrubbers are likely to stick to routes between major ports, where high-sulphur fuels will be readily available.
A range of marine fuel products — high-sulphur 380cst, high-sulphur 180cst, MGO and 0.5pc blends — will be available at the world's biggest bunkering hubs, including Rotterdam, Fujairah and Singapore. It is not clear what the availability will be at smaller ports.
Ships with scrubbers can take more expensive distillate fuels in emergencies, but repeated use of these grades will affect payback time for the technology. Large ships, with the highest consumption levels, need payback time of 12-18 months to justify the investment.
Scrubber demand has picked up drastically over the past six months as buyers rushed to the market ahead of the 2020 deadline. The capacity to manufacture and install the systems is limited in Europe — most manufacturers have filled their order books for pre-2020 fitting — but facilities in the Asia-Pacific region are likely to grow and provide the equipment at a lower cost.
Demand for scrubbers after 2020 is limited because the price differential between high-sulphur and 0.5pc fuels is likely to narrow, meaning a longer payback time on the investment.
And the outlook for scrubber uptake has suffered a blow recently. Singapore, the world's largest bunkering port, said it will ban ships that have installed open-loop scrubbers from discharging wash water in the port from 1 January 2020. About 70-80pc of scrubber demand is for open-loop systems. Open-loop scrubbers discharge waste sulphur directly into the sea.
The Singapore ban adds to similar moves in Germany, Belgium, Ireland and many US ports. The coming six months may see further port authorities follow suit. Tighter legislation is likely, especially in Emission Control Areas (ECAs). Further regulatory limits on the use of scrubbers may arise, but the IMO is unlikely to change regulations until the sulphur cap has been in place for a significant amount of time. Scrubbers could be fitted on around 4-5pc of the global fleet by 2020.
Most ships fitting the technology will be taking on contracts with marine fuel suppliers in order to secure supply, as availability of HSFO will decrease.
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