THE potential impact of IMO 2020 that restricts the sulphur content in marine fuel to 0.5 per cent worldwide has come under the microscope by FreightWaves oil experts John Kingston and Craig Fuller.
The current preferred fuel for ship transport, high sulphur fuel oil (HSFO), is no longer permitted for use under the International Maritime Organisation's new rule unless the ship is equipped with a scrubber that removes the sulphur from the emissions before they pour out of the ship's stack.
However, scrubbers are multi-million dollar investments and add weight to a ship. However, if the price of HSFO is cheap enough relative to other IMO 2020-compliant fuels, the capital expenditures needed to install them may be justified, reported New York's FreightWaves.
IMO 2020 has the potential to impact both shipping and trucking. With IMO 2020 now in force, the differences in the price of HSFO and alternative fuels were sending signals on what the regulation was going to cost the shipping sector. The price of HSFO dropped 21 per cent between late September and the end of 2019.
Conversely, the cost of a new grade of an IMO 2020 compliant fuel, or very low sulphur fuel oil (VLSFO), rose 30 per cent over the same timeframe.
The production of VLSFO is going to rely heavily on the use of an intermediate refined product called vacuum gas oil (VGO). The expected spike in demand for VGO is one pathway to compliance that could result in an increase in the price of diesel.
VGO is a feedstock that can be used to make over-the-road diesel as well as gasoline. By diverting it into the production of VLSFO - in other words, taking it away from road transportation and putting it into marine transportation - it has the potential to tighten supplies for diesel.
There is a second pathway to securing compliant fuel for IMO 2020 that has the potential to impact diesel markets. An existing product called marine gas oil (MGO) has long been used by ships to meet the requirements of IMO 2020.
However, MGO is a diesel product and the concern is that more consumption of MGO than prior to IMO 2020 will divert diesel away from trucking applications and into the marine fuel market.
Ships that continue to burn non-compliant fuels will be refused entry by ports. Plus, insurers have threatened to remove their coverage of ships burning such fuels. However, the ability of the market to supply adequate amounts of fuel will be impacted in part by the level of non-compliance that some forecasters have estimated could be as high as 10 per cent.
WORLD SHIPPING
The current preferred fuel for ship transport, high sulphur fuel oil (HSFO), is no longer permitted for use under the International Maritime Organisation's new rule unless the ship is equipped with a scrubber that removes the sulphur from the emissions before they pour out of the ship's stack.
However, scrubbers are multi-million dollar investments and add weight to a ship. However, if the price of HSFO is cheap enough relative to other IMO 2020-compliant fuels, the capital expenditures needed to install them may be justified, reported New York's FreightWaves.
IMO 2020 has the potential to impact both shipping and trucking. With IMO 2020 now in force, the differences in the price of HSFO and alternative fuels were sending signals on what the regulation was going to cost the shipping sector. The price of HSFO dropped 21 per cent between late September and the end of 2019.
Conversely, the cost of a new grade of an IMO 2020 compliant fuel, or very low sulphur fuel oil (VLSFO), rose 30 per cent over the same timeframe.
The production of VLSFO is going to rely heavily on the use of an intermediate refined product called vacuum gas oil (VGO). The expected spike in demand for VGO is one pathway to compliance that could result in an increase in the price of diesel.
VGO is a feedstock that can be used to make over-the-road diesel as well as gasoline. By diverting it into the production of VLSFO - in other words, taking it away from road transportation and putting it into marine transportation - it has the potential to tighten supplies for diesel.
There is a second pathway to securing compliant fuel for IMO 2020 that has the potential to impact diesel markets. An existing product called marine gas oil (MGO) has long been used by ships to meet the requirements of IMO 2020.
However, MGO is a diesel product and the concern is that more consumption of MGO than prior to IMO 2020 will divert diesel away from trucking applications and into the marine fuel market.
Ships that continue to burn non-compliant fuels will be refused entry by ports. Plus, insurers have threatened to remove their coverage of ships burning such fuels. However, the ability of the market to supply adequate amounts of fuel will be impacted in part by the level of non-compliance that some forecasters have estimated could be as high as 10 per cent.
WORLD SHIPPING