Argus spoke to Abu Dhabi-owned Spanish integrated energy firm Cepsa's head of marine fuels division Carlos Giner and international sales manager Francisco Diaz Castro. They discussed the firm's readiness ahead of the implementation of the International Maritime Organisation's (IMO) sulphur cap in January 2020, while highlighting uncertainties around compliance options for shipping firms, and storage.
What are the specifications of Cepsa's new IMO compliant 0.5pc sulphur fuel oil?
Giner: We have designed our product according our clients' requests for a RMG 180-380cst fuel oil as close as possible to the existing ISO 8217 specification, except for sulphur. This is what we will be producing at our refineries and storing at our hubs for sale.
Stakeholders have asked us whether our 0.5pc fuel oil is a blend of existing products [such as diesel, marine gasoil (MG0), 3.5pc high-sulphur fuel oil (HSFO) and low-sulphur fuel oil (LSFO)]. We will not be blending finished products to produce our 0.5pc fuel oil. Cepsa has specific streams for our product and some of them will come from our expanding middle distillate production capacity in Spain. These streams will be blended in-house based on our years of experience in producing marine fuels.
When do expect to start commercial sales ?
Giner: We are consistently talking to our clients and have distributed samples of the product. We will be producing it on an industrial scale for onboard trials from April onwards and start marketing it in the fourth quarter, mainly in November and December. We have not received any requests to deliver IMO compliant fuel oil before October.
Did you secure any term contracts to supply the fuel yet?
Giner: Not yet, we are surprised by the amount of shipping companies that are still undecided about how to approach compliance with IMO rules, whether to join the queue to install scrubbers or prepare for the switch to MGO or 0.5pc fuel oil. Some companies are clear about their plans — many cruise ship operators for example are opting for scrubbers — but other companies are still trying to gauge the refiners' capacity to supply the volumes required before deciding on which fuel to procure.
Diaz: Regarding scrubbers, the problem is not just the queue and the lead time for the equipment, but also the time it takes to accommodate the ships and crews to the new unit. Several cruise ship operators that have already installed scrubbers on their vessels have told us it takes six months to a year to be able to operate the vessel normally.
How many vessels do you think will have scrubbers installed by 2020?
Giner: We are expecting that there will be 1,500 to 2,000 ships equipped with scrubbers globally in 2020.
How much IMO compliant 0.5pc fuel oil do you expect to sell in 2020?
Giner: From conversations with our clients as to whether they will opt to stick with high-sulphur fuel oil (HSFO) [through the use of scrubbers] or switch to MGO, or new 0.5pc product, we are expecting to produce and sell about 2mn t of IMO compliant 0.5pc fuel oil in 2020. The flexibility of our refineries will allow us to adapt our production to demand for the three products. The message we are sending to the market is that we will continue to supply a full slate of marine fuels after 2020 in our main hubs, including 0.5pc fuels.
What are your logistics plans for storing and supplying the new product?
Giner: We plan to clean and accommodate tanks and supply infrastructure to deliver 0.5pc fuel oil at our hubs by tank truck, ship-to-ship, and ex-pipe, but with so much uncertainty in the market we are waiting until after the summer to decide on the amount of infrastructure we dedicate to the new product.
The idea is to accommodate 0.5pc fuel in our existing barges. Stopping sales of RMK 500cst and 1.5pc LSFO to cruise ships and ferries together with a decrease in HSFO sales will make room for 0.5pc fuels and the expected uptick in demand for MGO.
What is your outlook on prices for the new product?
We are expecting 0.5pc price spreads to MGO of over $100/t and over $300/t against 3.5pc HSFO in 2020. We think price differentials between MGO and 3.5pc HSFO could average over $400 next year.
We have heard about a couple of trades where the 0.5pc spread to HSFO has been at just $180-200/t, but we do not think these are significant given the current lack of liquidity in the market.
When do you expect to see a common standard product for 0.5pc bunker fuels?
Giner: The whole market is hoping for an International Organisation for Standardisation (ISO) standard soon, but this is likely to take time. Hopefully we will have some guidelines from the organisation before the end of the year, but we are not expecting the it to come up with a standardisation for the product in 2020, and we doubt it will be ready in 2021.
How has the bunker market performed for Cepsa in 2018?
Giner: We have seen our sales increase faster than market growth in Spain and at our international operations in Panama and Fujairah, with delivered volumes of MGO growing at a slightly faster rate than HSFO. We sold over 6mn t of bunker fuels in 2018, including 20pc — or 1.2mn t — of MGO, 5-10pc of fuel oil with 1-1.5pc sulphur for cruise ships and ferries and the remainder HSFO.
Diaz: The exit of marine fuels suppliers Macoil and Aegean from the bunker business in the Strait of Gibraltar has allowed Cepsa to boost our market share in key strategic area. We have serviced most of this extra demand at Algeciras but some clients have preferred to go some 80 nautical miles (150km) from the Strait to our terminal in Huelva, which has also benefited from the reduction of suppliers in the Strait. In Barcelona, RMK 500 product has performed well since we started selling it from the port in 2017.
A supplier in Spain told Argus in August that bunkers in the Strait were selling at a $10-15/t premium to prices at hubs in the Canary Islands, is that still the case?
Diaz: Prices in the Strait of Gibraltar are currently either at parity with the Canaries, or at a premium of no more than $5/t.
