Even if, in theory, globally there is refining capacity to produce sufficient fuels to meet the 0.50% sulphur cap in 2020, if you take a more detailed look the picture is very different.
In fact, several countries told the 70th session of the Marine Environment Protection Committee (MEPC 70) that they would not have sufficient refining capacity to offer compliant fuels to ships in 2020. Some of these countries are major bunker markets today, providing large quantities of residual fuel oil to ships calling at their ports, and some are also major providers of residual fuels to bunker markets in other countries.
IBIA has also spoken to representatives for other countries and refineries who have said that, without a doubt, they will not be able to replace current supply volumes of high sulphur marine fuels with compliant fuels by 2020. Some will even struggle with 2025 due to dated refineries with limited scope for investments in upgrades.
The reality, then, is that bunker markets in several ports and countries that currently provide significant bunkering volumes will not have similar volumes of compliant fuels available in 2020.
If these ports and countries want to maintain current bunkering volumes, they would rely on imports. Some bunker markets, in particular the world’s major bunkering hubs, already rely on imports to meet bunker demand and perhaps for these the transition to a new low sulphur regime will be less painful. For those that have long relied solely on local refineries, it will be more challenging.
One consequence pointed out by a member state during MEPC 70 is that there are regional imbalances in availability of compliant fuels. It is presumed that these imbalances will be addressed by transporting fuel cargoes around the globe, ironically causing greater demand for shipping and therefore increasing CO2 emissions and pushing up transport cost as a consequence.
It has also been suggested that bunkering patterns may change as ships gravitate toward ports that can most readily provide compliant fuels.
Winner and Losers:
If this is the case, these regional imbalances in availability of compliant fuels could create bunker market “winners and losers”. The losers would be those countries, ports and companies that are unable to maintain supply of competitively priced compliant fuels, thereby losing sales volumes.
The winners would be those countries, ports and companies that either have compliant fuel readily available from local sources, or that are able to adapt their cargo imports and infrastructure to maintain or even gain sales volumes.
For those playing their cards right, the 0.50% marine fuel sulphur cap coming in 2020 could present great opportunities and give them a winning hand, especially if they are able to provide compliant fuels at competitive prices relative to other bunkering ports.
Jokers in the pack:
MARPOL Annex VI has a fuel oil non-availability clause, stating a ship “shall not be required to deviate from its intended voyage or to delay unduly the voyage” in order to obtain compliant fuels. This is a situation that may occur quite frequently in 2020 and possibly beyond.
The question is whether ship operators are happy to use this clause and lift non-compliant fuels in ports with frequent shortages or even no availability of compliant fuels, or if they will do their utmost to take most of their bunkers in ports with reliable availability of compliant fuels. There’s also doubt as to whether all ships will comply at all times when operating on the high seas if there is no risk of getting caught or penalised.
These jokers in the pack could impact the balance between bunker market winners and losers, at least in the short term.
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Source: IBIA
