Marine fuel rules to challenge buying strategies

Tightening marine fuel requirements will increase the cost to supply current high-sulfur fuels and require more scrutiny on quality, Bunker Holding global head of physical operations Carlos Torres said today.

Marine fuel buyers will need to consider term contracts and a wider range of suppliers to ensure reliable source while meeting International Maritime Organization (IMO) rules, Torres, former BP head of marine fuels, told the Argus Fuel Oil Summit in Miami, Florida.

"This will definitely be one of the most disruptive events in our industry in our lifetimes," Torres said.

Signatories to the Marpol treaty must on 1 January 2020 have emissions consistent with 0.5pc sulfur fuel, down from the current 3.5pc sulfur.

Vessels can meet requirements by adopting lower sulfur distillate fuel blends, through exhaust scrubbers or by shifting fuel sources to LNG. Investment bank Goldman Sachs last month estimated global high-sulfur fuel oil (HSFO) demand will fall by two thirds in 2020 from 3.3mn bl in 2017. Vessels using scrubbers will consume 1mn b/d by 2020 and 1.4mn b/d in 2025.Compliant vessels without scrubbers will consume 1.35mn b/d of 0.5pc sulfur blends and another 800,000 b/d with lower sulfur distillates such as 0.1pc sulfur marine gasoil (MGO) in 2020.

Ship owners and refiners expect the change to create a short-term rise in distillate prices and a glut of high-sulfur fuel oil. But both groups have waited for the other to decide how to manage those changes, frozen by uncertainty over the future availability of higher- sulfur fuels and the number of vessels able to legally run them.

HSFO may become a niche product with higher storage costs and limited availability, Torres said. Barges loaded with high sulfur that typically turn eight to nine times a month in the bustling Singapore marine fuel market could be reduced to two to four times a month in 2020, he said.

"A lot of the things we know today and are used to today are going to be turned upside down," Torres said.

Ship owners investing in exhaust equipment to continue running high-sulfur fuel would need to move away from spot purchases to termed supply agreements to ensure sufficient fuel volumes to justify their investments, he said. Vessels relying on diesel blends would be exposed to more price risk and need to pay more careful attention to fuel certifications each time to keep their engines running reliably.

And no single trading house or major would be able to supply globally, he said. Dry bulk and other opportunistic vessels traveling on less fixed routes will especially need a wider array of suppliers, he said.