Viewpoint: European bunker spreads to favour scrubbers
Rising 0.5pc sulphur marine fuel prices in Europe in 2021 will give a boost to shipowners that invested in exhaust gas cleaning systems, or scrubbers, to enable the continued use of 3.5pc sulphur product (HSFO). Use of the latter may have hit a ceiling, and demand for the 0.5pc product, which in 2020 became the most popular marine fuel, will largely be dictated by Covid-19 developments.
Demand for transport fuels, including bunkers, is likely to rise if vaccines roll out and global trade recovers. Early positive vaccine news has already led to signs of this — the price of 0.5pc fuel oil in Rotterdam, Europe's biggest bunker port, has increased by more than $100/t since the start of November.
Should this continue, the difference between the price of 0.5pc and 3.5pc sulphur fuel oil — known as the scrubber spread — is likely to widen, lessening the payback times for those shipowners that invested in scrubbers. The premium of 0.5pc to 3.5pc (HSFO) in Rotterdam was more than $300/t at the start of January, but since the crude price tumbled in March it has not been above $100/t. It has mostly been below $70/t since the spring and passed beneath $30/t on several occasions. This narrow spread has seen orders for the cleaning systems drop off. Classification society DNV GL said that the global fleet will have 4,384 ships either with a scrubber or with one on order by the end of 2020, but only a further 155 are scheduled for fitting in 2021.
The price of 0.5pc fuel oil in Europe could also receive support in 2021 if refining margins for non-marine transport fuels improve as demand recovers. Dependent on how run rates adjust, 0.5pc fuel oil production could fall.
Demand for HSFO has been rising globally over the past few months as ships equipped with scrubbers return to the water, and the price of HSFO in Rotterdam has risen by over $70/t since September. HSFO sales in Rotterdam were 11pc higher in the third quarter of 2020 than the second quarter, and in October these topped 1mn t monthly in Singapore for the first time in the year.
A vaccine-driven revival of the cruise sector could boost HSFO demand. DNV data show that 220 cruise ships have scrubbers, around half the global fleet. Covid-19 has hit the cruise sector hard in Europe. Cruise ship visits to Spanish ports fell to 631 in the first 10 months of 2020 from 3,500 a year earlier, and nearly 500 of the 2020 total were in the first quarter.
But, given the immense task of widespread Covid-19 vaccinations, any cruise-driven boost to HSFO demand will happen later in 2021 if at all.
Sales of marine gasoil with 0.1pc sulphur (MGO) may continue to fall in Europe. MGO was a popular choice at the turn of 2020 when the International Maritime Organisation (IMO) 0.5pc sulphur cap came into force, because of concerns about the quality of new IMO-compliant blends. There have been some quality issues with 0.5pc fuel oil, but these have not been widespread.
MGO sales in Rotterdam were 26pc lower in the third quarter of 2020 than in the first three months of the year, and the lowest for any quarter since the start of 2017.
Alternative fuels like biofuels, LPG and LNG will continue to make inroads into Europe's bunker market in 2021. Trading firm Trafigura recently said that it plans to supply marine biofuels in Rotterdam. LNG sales passed 50,000m³ in Rotterdam in the second quarter of 2020, and look likely to total at least double 2019 levels in the whole year.
The Mediterranean's largest bunker port, Gibraltar, wants full-scale LNG bunkering to begin in 2021, and Turkish state-owned gas firm Botas plans to start providing LNG as a bunker during the year.
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