Still many unanswered questions and doubts about the low sulphur fuels, their availability, and the validity of the scrubbers from an economical point of view (considering the long amortization time needed) and their environmental point of view, as many doubt that the fast changing anti pollution regulations might render them obsolete before their actual repayment.
The glut in low sulfur fuels has been a double-edged sword for the shipping industry. It muted the impact of availability and compatibility concerns at the cost of lower prices, which have mirrored the wider crude market since May.
Demand for very low sulfur fuel oil is set to recover slowly in line with increasing confidence in the industry’s new fuel of choice, according to some experts.
Crude prices have plateaued around $40/b for several months as a tentative recovery in demand has stalled and the OPEC+ producer alliance has eased off on its output cuts. A similar situation has occurred in Rotterdam’s marine fuels prices, which steadied around the $300/mt mark in the third quarter.
S&P Global Platts Analytics predicts crude oil prices at $44/b by the end of the year and $50/b by end-2021, suggesting any improvement in VLSFO prices would also likely be slow going. Low refinery margins and spikes in COVID-19 infection rates have weighed on the recovery.
Some industry watchers, while downbeat on demand recovery prospects over the next 6-12 months, highlighted how sturdy bunker demand has been, with shipping continuing to operate amid the coronavirus pandemic and been responsible for 90% of global trade.
Shipping freight report outlook 2020 Q4
“Demand impact for the bunker market has been far less than for other sectors,” Steve Christy, at Navig8, said in a research note. “Fuel oil demand [is] running at around 0.5 million b/d below 2019 levels through this year and next year.”
But the weakness in demand has allowed the industry to come to terms with VLSFO.
The 0.5% sulfur, International Maritime Organization-compliant fuel had given industry participants sleepless nights over whether there would be compatibility issues, given the various blends available, and whether they would be able to get hold of the fuel at all ports.
Euronav CEO Hugo De Stoop told S&P Global Platts in a recent interview that, while it was a change many supported, it has led to some technical issues.
“A lot of people are still suffering from it. We may have suffered a little bit less because we were able to accumulate the product that we tested before putting into our engine,” the tanker boss said.
“Normally, the way to look at it is that you go to the pump station with your ship and you are provided something that has a certificate of quality, but unfortunately, the certificate of quality does not really match the new fuel, it’s more a match of the old fuel.”
But he noted that VLSFO is a “logical fuel”, compared with high sulfur fuel oil, the previous fuel of choice, given regulatory and cost concerns over using the necessary scrubber technology to make the latter viable.
Much of IMO 2020’s impact has been muted by the global coronavirus pandemic. But a new normal is slowly emerging and, with it, greater global availability and capacity at ports, according to industry sources.
ExxonMobil has made its fuel available at an increasing number of ports as port capacity grows, the company’s marine fuels technical adviser, Armelle Breneol, said at the Petrospot Summit.
Amid changes in infrastructure and supply, bunker demand centers have not changed due to IMO 2020, sources say. But competitive pricing could challenge that.
Bunker prices for VLSFO at the smaller bunker port in Lisbon have rivaled those at the nearby Mediterranean hub of Gibraltar during Q3, averaging $328/mt while Gibraltar averaged $331/mt, Platts data shows.
As global availability of low sulfur fuels increases, HSFO supply has tightened, creating something of a supply-demand mismatch.
Even in the new low sulfur environment, HSFO continued to account for 25% of bunker sales at Rotterdam in the first half of this year, and 21% of Singapore’s September sales, data from Rotterdam port authority and the Maritime and Port Authority of Singapore shows.
Analysts expect HSFO to gain even more traction for the rest of 2020, as more ships install scrubbers to comply with the sulfur cap rules.
Scrubber installations in the VLCC and Capesize sectors amount to 30% of the fleet, with that likely to grow to 35% by the end of the year, BIMCO chief shipping analyst Peter Sand said.
This comes despite the odds stacked against this mode of IMO 2020-compliance. It would take approximately six to seven years to pay back a scrubber installation worth $3.5 million on an Aframax vessel at Rotterdam’s VLSFO-HSFO spread averaging $48/mt in Q3, Platts data and Platts Analytics estimates show.
Scrubber investments payback time
This compares with a considerably shorter payback period in Q1 of between one and two years, when the spread averaged $159/mt.
There are also questions over whether scrubbers would continue to hold up if the regulatory environment changes quickly.
The range of fuel options for shipowners is likely to further increase as green regulation changes. In what can only be described as a dramatic year for the marine fuel market, some are hailing 2020 so far as a useful indicator of the pace of change still to come.