- As new IMO regulations are set to come into force, shipowners need to take action to be compliant on January 1, 2020.
- A handful of refiners have made a significant investment to desulphurize HSFO to the new 0.5 wt percent S grade, termed very low sulphur fuel oil (VLSFO).
- Fuel oil supplied from Middle East’s major refineries are all high sulphur, reflecting the medium, sour quality of the regional crude resources.
According to an article published in Gulf News, the pricing environment for compliant bunker fuels will be volatile over the coming months.
Compliant fuel or scrubbers?
For those who have invested in commercial scrubbing to enable them to continue to consume high sulphur fuel oil (HSFO), the challenges are those associated with any major retrofit — delivery schedule, acceptance and performance testing. Many shipowners have elected not to make such investments, so they will be seeking to purchase compliant fuels. These owners will find themselves relying on the refining industry and the choices it has made.
VLSFO is a new fuel oil grade that has not been made available in large volumes to date, so there is uncertainty as to its pricing and quality. Many refiners are looking to utilize their current configuration and optimize their crude purchase, fuel oil segregation and blending to supply VLSFO.
Upgradation of operational units
These changes are largely operational, with modest capital outlays for any associated changes in their piping and storage networks.
Refiners have a further supply option, which is to divert low sulphur vacuum gas oil (VGO) away from upgrading units that typically produce transport fuels such as gasoline and diesel, to VLSFO. This introduces additional complexity, as VLSFO availability and pricing will be linked to both gasoline and diesel/gas oil markets.
If VLSFO availability is low, or there are concerns regarding its quality and compatibility, then shipowners can use marine gas oil, which is a well-known fuel but it is far more costly. The development and adoption of ship implementation plans for the successful transition to IMO compliance are critical.
There is considerable uncertainty at present about the volumes and associated qualities of the VLSFO bunker fuels that will be available.
Uncertainties for shippers and refiners
Pricing indications are emerging with VLSFO pricing moving away from HSFO plus to a marine gas oil minus basis as suppliers look to move away from blending small volumes for shipowner testing and trials to supply commercial volumes.
It is very likely that the pricing environment for compliant bunker fuels will be highly volatile in the coming months as both the refining and maritime markets adjust to a new equilibrium.
Impact on the Middle East
Shipowners who frequent the Middle East have a further challenge, however. Fuel oil supplied from the region’s major refineries are all high sulphur. This reflects the medium, sour quality of the regional crude resources.
There is a facility at Fujairah that is likely to be the key source of VLSFO in the region. Given this facility requires very low sulphur crude to supply VLSFO, its performance is highly dependent upon how much crude oils price in the new market environment and whether it can pass on any additional costs to the shippers.
Shipowners need to be flexible in their sourcing of compliant fuels to secure availability and low-cost supplies.
