Shipping Fuel Costs to Spike 25 Percent in 2020 on Sulfuric Cap: WoodMac

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The growing need for IMO marine fuel compliance will likely rise the global shipping fuel cost by quarter billion in 2020, reports Reuters.

Wood Mackenzie comments on the new rules that might limit the new sulfur fuel entry into the marine fuel market.

MGO compliance

This galloping costs will happen due to the change in regulations, that forces a portion of the world’s fleet to switch to a lower sulfur, however higher cost, fuels such as marine gasoil (MGO) and ultra low sulfur fuel oil might have direct effect on the freight charges.

“Switching to MGO is a more costly solution, and in full compliance, would probably see freight rates increase, perhaps by around $1 a barrel,” said Wood Mackenzie senior research analyst Iain Mowat.

Radical IMO rules

Also, this can be attributed to a more radical decision by the International Maritime Organization’s (IMO) which aims at cutting the maximum amount of sulfur emissions that ships worldwide can burn to 0.5 percent of fuel content by 2020, from its present 3.5 percent burn rate.

The rule change marks a seismic shift for the shipping and refining sectors. The IMO is meeting in London this week to hash out further details on how it will implement the rules and ensure compliance.

Scrubbers are shippers friend

Shippers who choose to install “scrubbers” can burn the current cheaper high sulfur fuel oil, but its installation in not going to happen on time by 2020.

Negative effect of compliance

As Wood Mackenzie says that this is just the “base case” for cost increase, which is $24 billion in 2020, but when if no vessels added scrubbers and all ships complied with the rules, the spike could be as high as $60 billion. Although the total global shipping fuel bill is about $100 billion today.

Incentives not likely to help

Mowat comments that even though shippers might expect a 20-50 percent return on their investment cost for installing scrubbers, the penetration rate has more limitation factors including limited access to finance, scrubber manufacturing capacity and dry-dock space. Wood Mackenzie estimates just 2 percent of the global fleet will have scrubbers by 2020.

Refineries under pressure

Wood Mackenzie says that the world’s refiners must gear up to churn out and meet the demand for lower sulfur fuels that vessels will face, which might also shift the refuelling stations as per availability.

He points out a likely scenario and says, “Singapore, for example, could potentially lose some of its market share for bunker fuels to China as shippers look for alternative locations with a surplus of compliant fuels,” Mowat said. “China, with ample MGO supply, is well positioned to attract shippers.”

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SourceReuters

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