TECHNICAL • PROPULSION
Shipping and refiners in catch-22 over sulphur rule
IMO’s global regulation imposing a 0.5% fuel sulphur content cap is less than three years away from the enforcement date of 1 January 2020, leaving the refining and shipping industries caught in a catch-22 situation.
The problem with the rule is indeed a textbook conundrum with refiners and shipowners caught in a quandary whereby the former as ‘suppliers’ are unable to commit on how much to produce, while the latter as ‘buyers’ do not know how much will be available.
Heavy fuel oil (HFO), which is high in sulphur content, is the traditional source of energy to power ships. In 2016, global demand for high-sulphur HFO stood at almost 70% of overall bunker fuels, including the low-sulphur marine gas oil (MGO), or distillates, with below 0.5% sulphur content.
The switch to burning MGO is an option for shipowners to comply with the IMO regulation, and two other alternatives are installing abatement technology such as scrubbers or using LNG as fuel (see previous article). Widespread use of LNG as fuel, however, is considered a distant option due to the global lack of LNG bunkering infrastructure as well as supply uncertainty.
‘Installing scrubbers may be an economically attractive option, says Sushant Gupta, director - Asia Pacific, refining and chemicals research,
Islamorada Visit:
seatrade-maritime.com
Wood Mackenzie. ‘Although there is an initial investment, shippers can expect a high rate of return of between 20-50% depending on investment cost, MGO-fuel oil spread and ships’ fuel consumption,’
‘Despite attractive returns, penetration rate for scrubbers could be limited by access to finance, scrubber
manufacturing capacity, dry-dock space and technological uncertainties. The shipping industry is traditionally slow to move, but in this case, early adopters may hugely benefit,’ Gupta adds.
Wood Mackenzie forecasts that the retrofitting or installation of scrubbers will not pick up substantially until 2020 due to the costly investments ranging from $5-10m per vessel.
Scrubber manufacturer DuPont Clean Technologies has estimated that up to 25% of the world’s fleet could be fitted with abatement technology by 2025, and predicted that in the run up to 2020 between 500 to 2,000 additional ships would retrofit with scrubbers.
‘Switching to MGO is a more costly solution,’ continues Gupta. ‘In full compliance, we expect shippers to try to pass the cost to consumers and freight rates from the Middle East to Singapore could increase by up to $1 a barrel.’
Oil market research firm JBC Energy notes also that tonne-kilometres and
www.islamorada.com Seatrade Maritime Review • Quarterly Issue 2 • June 2017 81
freight rates for dirty tankers are likely to receive a boost with the 0.5% sulphur regulation. ‘On top of that, requirements for floating storage of low and high sulphur residue streams are expected to be an additional pillar of support for freight rates over the crucial period from 2019 through 2021,’ it says.
In terms of demand, Wood Mackenzie’s data shows that MGO sales are currently around 700,000- 800,000 barrels per day (bpd), and they are forecast to skyrocket to 2.8m bpd by 2020. Demand levels for HFO, on the other hand, are at around 3.2m bpd and are projected to plunge to 700,000 bpd by 2020.
Gupta points out that the change in supply landscape would then create a dilemma for scrubber users who would question if there will be enough HFO to burn if refiners significantly restrict the sale of the high-sulphur product as they reap higher margins from selling MGO. Refiners also have their worries that any extra production of MGO would be stranded if the more ships equipped with scrubbers continue to consume the less costly HFO.
‘The options for refiners and ship operators will depend on the course of action decided by each of them. At the end of the day, the shipping industry and refineries need to communicate and find middle ground, and time, unfortunately, is running out,’ warns Gupta.
By Lee Hong Liang
This article first appeared on Seatrade Maritime News.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100
