Steep sulphur fuel cut promises disruption, warns bunker association
IMPLEMENTING a global fuel shift from the 3.5 per cent sulphur limit to 0.5 per cent overnight - as demanded by the United Nations in 2020 - is likely to lead to mass disruption, says the International Bunker Industry Association (IBIA).
When the emissions control area (ECA) sulphur limit dropped to 0.1 per cent in 2015, the expected fuel price increase in marine gas oil (MGO) did not materialise because the world price in crude collapsed, conceded IBIA chief executive Peter Hall.
"However, there is no guarantee that the introduction of the global cap will coincide with a similar period of low oil prices," he warned.
According to the International Energy Agency (IEA), the difference between the ECA change in 2015 and the global 0.5 per cent cap would be even more dramatic, reported London's Tanker Operator.
It advised the 0.1 per cent ECA sulphur limit caused 0.1 million barrels per day to shift from residual fuel oil to gas oil, while a global cap in 2020 would lead to a two million barrels per day shift from heavy fuel oil to marine gas oil.
"The refining industry is able to absorb incremental growth of distillates, but an abrupt major increase, like a global shift to 0.5 per cent sulphur fuels, will very likely to cause a period of supply shortages," the IBIA said.
A distillate shortage and hence price inflation in shipping could impact inland markets, such as road transport fuels and heating oil.
Also an uptake of abatement technology, such as scrubbers, is expected to allow a portion of the world fleet to continue to use heavy fuel oil with higher sulphur content both in ECAs and globally.
But if suppliers expect the demand for HFO to shrink dramatically, it could become a niche market with fewer suppliers willing to offer it.
There would then be a risk that supply of heavy fuel oil will begin to disappear just as more ships are installing scrubbers, the IBIA said.
“Today, we are asking members whether they want to bring the issues associated with the transition to a global 0.5 per cent sulphur limit, and potential mitigation strategies, to the attention of the MEPC," said Mr Hall.
The IMO's MEPC is expected to decide on the timing of the global cap in October this year, based on the result of a low sulphur fuel availability study required under MARPOL Annex VI.
IMPLEMENTING a global fuel shift from the 3.5 per cent sulphur limit to 0.5 per cent overnight - as demanded by the United Nations in 2020 - is likely to lead to mass disruption, says the International Bunker Industry Association (IBIA).
When the emissions control area (ECA) sulphur limit dropped to 0.1 per cent in 2015, the expected fuel price increase in marine gas oil (MGO) did not materialise because the world price in crude collapsed, conceded IBIA chief executive Peter Hall.
"However, there is no guarantee that the introduction of the global cap will coincide with a similar period of low oil prices," he warned.
According to the International Energy Agency (IEA), the difference between the ECA change in 2015 and the global 0.5 per cent cap would be even more dramatic, reported London's Tanker Operator.
It advised the 0.1 per cent ECA sulphur limit caused 0.1 million barrels per day to shift from residual fuel oil to gas oil, while a global cap in 2020 would lead to a two million barrels per day shift from heavy fuel oil to marine gas oil.
"The refining industry is able to absorb incremental growth of distillates, but an abrupt major increase, like a global shift to 0.5 per cent sulphur fuels, will very likely to cause a period of supply shortages," the IBIA said.
A distillate shortage and hence price inflation in shipping could impact inland markets, such as road transport fuels and heating oil.
Also an uptake of abatement technology, such as scrubbers, is expected to allow a portion of the world fleet to continue to use heavy fuel oil with higher sulphur content both in ECAs and globally.
But if suppliers expect the demand for HFO to shrink dramatically, it could become a niche market with fewer suppliers willing to offer it.
There would then be a risk that supply of heavy fuel oil will begin to disappear just as more ships are installing scrubbers, the IBIA said.
“Today, we are asking members whether they want to bring the issues associated with the transition to a global 0.5 per cent sulphur limit, and potential mitigation strategies, to the attention of the MEPC," said Mr Hall.
The IMO's MEPC is expected to decide on the timing of the global cap in October this year, based on the result of a low sulphur fuel availability study required under MARPOL Annex VI.