UK-based
E.A. Gibson Shipbrokers Ltd warns that the refining sector may find it difficult to meet the increase in demand for marine gas oil (MGO) when a global 0.5 percent cap on the sulphur content of marine fuel is implemented in January 2020.
"Current estimates suggest that marine fuel demand stands at 4 million b/d, even if it is assumed that just half of that demand is transferred across to MGO, the refining sector may still struggle to cope," the London broker said in a report on Friday.
Gibson points out that a shift to distillates will require investment in desulpherising and coking capacity to produce the necessary volumes of compliant fuels and refers to a
recent report carried out by EnSys Energy & Systems Inc. and Navigistics Consulting which says oil refiners will have "extreme difficulty" in meeting demand for low-sulphur marine fuel when the 0.5 percent limit is imposed in just over three years' time.
The BIMCO-sponsored report, which was submitted to the International Maritime Organization (IMO) prior to last month's Marine Environment Protection Committee (MEPC) meeting, concluded that "the global refining industry is unlikely to be able to meet the needed extra sulphur removal demand because 2020 sulphur plant (and hydrogen plant) capacity will not be adequate based on current capacity plus projects".
Gibson suggests that the increase in demand for MGO will lead to tighter availability of distillates, raise prices and increase the spread between high-sulphur fuel oil (HSFO) and MGO as a result.
Additionally, Gibson points out that a shift towards cleaner fuels could also affect crude trade flows because it may increase demand for sweeter crudes - used to produce lower-sulphur fuels.
Other sources
Maritime consultancy
20|20 Marine Energy previously stated in May that fears of a distillate shortage 'could be misguided'. The company pointed out that diesel use within the automotive and land-based industries may be in decline, which would free up surplus product that could be directed to shipping; it added that refiners will look to create a market for HFO - a refinery by-product which can only realistically be used within shipping.
The
International Energy Agency (IEA) estimates that shipping will account for 9 percent of global distillate demand by 2020, up from 3 percent in 2015. It says a 2020 implementation date for the 0.5 percent sulphur cap would see 2 million barrels per day (b/d) of marine fuel demand switch from heavy fuel oil (HFO) to marine gas oil (MGO), leading to a 2 million-b/d jump in global distillate demand to 30 million b/d. By comparison, the change in the ECA sulphur cap from 1 percent to 0.1 percent in 2015 led to a 0.1 million b/d switch from HFO to MGO, the IEA says.
Meanwhile, the
International Petroleum Industry Environmental Conservation Association (IPIECA), using combined data from BP, Marine and Energy Consulting, IEA and OPEC, has said that a switch from HFO to distillates and/or desulphurised HFOs in 2020 would see demand for these products jump 3 million b/d or more, compared to a rise of 0.5 million b/d when the ECA regulations were implemented in 2015.
Alternative solutions in 2020: Scrubbers
Gibson points out in Friday's report that with a scrubber installation currently costing between $3 million and $10 million, this type of investment on an older ship will be difficult to recover. With younger vessels, however, Gibson argues that scrubbers "might make more sense", especially if the price differential between HSFO and distillates widens.
However, the installation of scrubbers may be technically difficult due to the requirements for extra space and waste collection tanks, Gibson stresses.
Also, there will be costs associated with disposing of the hazardous waste created during the scrubbing process.
Alternative solutions in 2020: LNG
Gibson says the construction of vessels that can be easily converted to LNG "appears to be a sensible option", as it provides shipowners with the flexibility to convert to gas fuel when certain logistical, financial and technical issues have been resolved. Currently. LNG bunkering does not have a wide enough coverage to suit tramp shipping, the shipbroker points out.
As with costly scrubber technology, Gibson suggests that it may be difficult for older ships to recover the cost of LNG conversion, hence low-sulphur fuels may be the best solution for these vessels.
