2020 Bunker Regulation - "A Refined View"
March 23, 2017
Fuel Oil or Not?
It seems quite clear that alternative fuels (i.e. LNG, methanol, etc.) will not be able to substitute for large amounts of fuel oil in 2020, essentially leaving two options on the table; one being a compliant bunker fuel the other being the use of exhaust scrubbers. Given the high level of uncertainty, whether it is regarding future fuel prices or the availability and cost of scrubber technology, it is quite likely that the use of a compliant bunker fuel will be the go-to solution in the early stages of the spec switch. JBC Energy’s study provides a detailed explanation as to why this bunker fuel is likely going to be a fuel oil based solution, rather than the more frequently proposed increased use of marine gasoil.
The Scrubber Question – It Is All About Price
Every ship owner will have to deal with the scrubber question and try to decide whether it presents an economically viable option. JBC Energy’s study will give you insight into the fuel price spreads that could be expected in a world that is limited to 0.5% sulphur. Besides that, it lays out a base case path for the demand effect if increased installation of such units, arguing that timing and engine size will be the key factors shaping any successful scrubber investment.
Fuel Composition & Quality
JBC Energy’s proposed solution to the fuel supply question suggests that the future 0.5% sulphur bunker should have improved stability and storage characteristics relative to the current global average HSFO barrel. At the same time, shippers that operate scrubbers and use HSFO are more likely to have to deal with worsening fuel qualities, for example when it comes to issues such as the concentration of various metallic contaminants in those fuels.
The Importance of Storage
Given that the global nature of the spec change prevents any one country from delaying its onset, and also the tendency to push back investment decisions until there is more certainty regarding price spreads, there is a high likelihood for some parties to be caught unprepared. This is why JBC Energy sees a strong need for sizeable storage operations, including the floating option, in order to guarantee a somewhat smooth transition process. In a simplified manner, this means that pre-2020 you will see a very strong focus on storing (and transporting) suitable low-sulphur fuel oil components, while the post-spec switch time will be dominated by a large build-up of HSFO stocks.
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