According to Wood Mackenzie Research Director, a switch to cleaner marine fuels in the shipping industry from next year would create more than a million barrels per day (bpd) of incremental demand for marine gasoil, reports Reuters.
IMO Sulphur cap
New regulations from the International Maritime Organization (IMO) will require shippers to reduce the sulphur content in fuels used in their vessels starting from Jan. 1, 2020, and one way to do that is to switch to low-sulphur gasoil.
“There will be a huge amount of middle distillates used in the shipping sector starting 2020 with an incremental demand of 1.2 million bpd for marine gasoil (MGO),” Sushant Gupta, director for Asia-Pacific refining at WoodMac said at the Tank Storage Asia conference in Singapore.
Drop in HSFO demand
Currently, there is demand of about 3.5 million bpd for 380-centistoke high sulphur fuel oil (HSFO), which will drop to only about 600,000 bpd in 2020, he said.
Currently as shippers prepare for the switch, Gupta expects there will be strong demand for very-low-sulphur fuel oil (VLSFO) as it is cheaper and compliant with IMO regulations, while gasoil would see a demand uptick from around the end of November.
“We’ll start the year with around 1.4 million bpd of VLSFO available in 2020. So, these are the first volumes being supplied to the shipping sector,” Gupta said on the sidelines of the conference.
He added, “But once the initial VLSFO supply is contracted or bought, we’ll start to see demand for gasoil.”
Increasing requirement of Gasoil
In the first quarter there will be a lot of volatility, but by the second quarter the gasoil demand would be established, Gupta said.
The MGO and HSFO price spread will average over $250 per tonne over the next five years, while VLSFO would average $50-$70 per tonne below MGO, according to WoodMac.
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