New mixes emerge as shipping fuel of choice ahead of IMO 2020
With a week until the implementation of International Maritime Organization (IMO) rules that will slash the permitted level of sulphur in marine fuels, shippers appear to be favouring very low-sulphur fuel oil (VLSFO) mixes over distillate fuels.
The price differential between VLSFO and marine gasoil has narrowed sharply at various major port locations around the world in recent weeks.
The IMO 2020 rules lower the ceiling on sulphur in ship fuel to 0.5% sulphur unless they are equipped with exhaust-cleaning systems known as scrubbers, down from 3.5% currently.
In Singapore, the world’s largest bunkering port, the difference in price between VLSFO and marine gasoil, a distillate-based fuel that also satisfies the new sulphur requirement, was at near parity late last week, around $650 a tonne, according to S&P Global Platts assessments.
This compares with $75 a tonne in early September.“Shipowners have shown a clear preference for VLSFO-type fuels over MGO, probably due to viscosity and other factors, so the rise in VLSFO relative to diesel effectively permits blending a wider range of heavy components into VLSFO blends,” Robert Campbell, head of oil products at consultancy Energy Aspects said.
Some shipowners and operators, especially those with larger ships, strongly prefer VLSFO over MGO because of technical issues related to running on distillate fuel as opposed to heavy fuels.“The biggest nightmare for a shipping company is having a large ship with engine failure drifting at sea in stormy weather,” Nordic bank SEB said in a note.
As shipping companies prepare to bring their fleets into compliance with IMO 2020, LNG is poised to capture a small but growing portion of the international bunker fuel market in the US and across the globe.
The IMO’s new regulations will come into effect from January 1, 2020 when the ocean-going vessels have to cut the sulfur content in fuels to 0.5% from the previous limit of 3.5% established in 2012.The change in sulfur limits has had “wide-ranging repercussions for the global refining and shipping industries as well for petroleum supply, demand, trade flows and prices,” according to a report in March from the US Energy Information Administration.
To comply with the regulations fleet owners are switching to the use of low-sulfur fuel oil as well as non-petroleum-based fuels, such as LNG, EIA said.The adoption of LNG as a bunkering fuel is expanding across the globe, with new bunkering infrastructure being built in Europe, Asia and North America, according to Sea/LNG, an international industry coalition promoting the use of LNG as a marine fuel.
In the US, EIA forecasts that the use of LNG as a marine bunkering fuel will remain limited through 2020 and grow slowly in the years afterward. In its Annual Energy Outlook 2019, the EIA reference case projects limited use of LNG as a bunker fuel in the next five years, “reflecting the high initial infrastructure development cost and the limited current infrastructure to accommodate LNG bunkering at US ports.”
As US LNG bunkering infrastructure is built out over the next several years, LNG’s share of the US bunker fuel market is forecast to grow in the medium and long term, expanding to 7% of the market in 2030 and to 10% by 2050 from a relatively small share, EIA said.
Over the past several years, a number of ships have been either built with or were offered to be equipped with LNG-ready engines — engines that could be configured to run on LNG at a later date, EIA said.
“Very few vessels consume LNG as their primary fuel, and the infrastructure to support LNG as a shipping fuel is currently limited in both scale and availability,” the EIA March report states.According to Sea/LNG, there are currently 170 LNG tankers in operation and 184 ships on order.
One of the early adopters of LNG-fueled ocean-going vessels was Carnival. “We were the first cruise line to adopt LNG as a fuel source for shore power, and now we are the first cruise line to launch a ship powered by LNG at sea,” Roger Frizzell, a spokesman for the cruise line company said.