- Shipowners and ship charterers seen filing lawsuits against bunker traders though marine fuel contamination issues have subsided.
- Shipowners going for GCMS tests for the fuel they purchase
- Prices of VGO and SRFO are believed to be high in 2020
- Refiners, seen testing blends of residual fuel oil and ULSD to find a market for their HSFO output.
- Scrubber ROI is expected in about 1.1 years, assuming the price spread between high-low sulphur fuel oil is at $200/t.
Compatibility concerns and fuel availability will overshadow progress made in meeting approaching 0.5pc sulphur marine fuel regulation says an article in Argus Media.
Shipowners file lawsuits
US Gulf bunker fuel demand rose in the fourth quarter as the marine fuel contamination issues, which plagued the Gulf bunkering sector the second and third quarter of 2018 subsided.
But we could see shipowners and ship charterers filing lawsuits against bunker traders. In turn bunker traders suing blenders and refiners for damages to vessels caused by the contaminated bunkers.
There is also the potential for a single large civil lawsuit filed by a number of shipowners as plaintiffs.
GCMS for fuel purchased
The Gulf coast fuel specification issues have made shipowners more cautious about the type of marine fuel they burn. Some shipowners are now requiring gas chromatography mass spectrometry (GCMS) tests for the fuel they purchase apart from the standard testing.
These could become more common when shipowners start buying 0.5pc sulphur marine fuel, which could contain a number of blended products.
Traders peg fuel price
Launched in mid-November, Argus‘ 0.5pc sulphur resid prices for New York and the US Gulf reflect daily input from bunker and residual fuel oil cargo sellers.
In the absence of spot, physical trade and of firmly established 0.5pc sulphur bunker specifications by the International Organization for Standardization (ISO), US traders and refiners’ views have diverged on the composition, and therefore the price, of 0.5pc sulphur residual bunkers.
Traders have been pegging 0.5pc sulphur heavy bunker fuel prices between the price of 0.5pc sulphur VGO and low-sulphur straight-run fuel oil (SRFO).
Importing VGO and SRFO
Traders believe that in 2020, prices of VGO and SRFO will be high enough that they will be less attractive as refinery feedstock and could be sold directly into the bunkering market.
Some US-based traders are looking to facilitate imports of these products from Algeria, Nigeria, the Russian Baltic Sea and the Russian Black Sea closer to the 2020 implementation date.
Refiners, on the other hand, were testing blends of residual fuel oil and ultra-low sulphur diesel (ULSD) with 0.0015pc sulphur content, in an effort to find a market for their high-sulphur fuel oil output. Currently resid-gasoil blend prices are less competitive compared with outright VGO and SRFO values.
ROI with scrubbers
Argus assessments for the first week of November showed the 0.5pc – 3.5pc sulphur resid premium in the US Gulf ranging between $11.30-11.80/bl (about 73-76/t); and the 0.5pc – 3pc sulphur resid premium in New York ranging at $10.80-11.39/bl (about $69.50-73.50/t).
Industry forecasts have called for spreads to widen in the fourth quarter of 2019, and peak in the first half of 2020. Price spreads projections are tracked by shipping companies investing in scrubbers.
According to shipowner Genco Shipping & Trading, a vessel with over 150,000t deadweight could see a scrubber return on investment in about 1.1 years, assuming the price spread between high-low sulphur fuel oil is at $200/t. For smaller vessels the return on investment at $200/t spread could vary from 2.4-4.9 years.
The US Gulf 3.5pc sulphur residual fuel oil price as a share of the price of Brent crude rose to 98pc on 19 November, nearly a nine-year high. The resid crack strengthened as the US resumed sanctions on Iran on 5 November on the expectation that residual fuel oil availabilities will tighten globally because of reduced Iranian exports.
The US previously placed sanctions on Iran January 2012, and the price of residual fuel oil cargoes in the US Gulf as a share of the price of Brent crude jumped up to 92pc. But by the end of 2012, residual fuel oil crack spreads had returned to their pre-sanction levels.
The effect of the Iran sanctions could also wear off sooner this time with the approach of the IMO January 2020 marine fuel regulation, itself set to create a global resid surplus.
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