Preparing for Sulphur 2020: Factors that will shape the fuel market
January sees the much-anticipated Sulphur 2020 regulations finally come into force, heralding a new era for the shipping industry. Experts say the sector is ready, but what factors will influence the market for low sulphur fuel in the coming months?
“Inevitably there will be hiccups.” Anders Kobbernagel, senior risk manager at Norwegian Oil Trading, offers a pragmatic assessment of the impact January’s Sulphur 2020 regulations will have on the shipping sector.
He believes the industry is as ready for the 0.5% cap on sulphur in marine fuels as it can be. “We feel the industry has done everything it can to prepare. There will be unexpected issues that arise, but shipping companies are used to solving problems.”
Kobbernagel and his team have identified the factors they believe will have the biggest impact on marine fuels from January onwards. But what forces are likely to influence the market?
1. Geopolitical issues and oil price volatility will play a role.
2019 has seen considerable volatility in the oil price. That trend is expected to continue next year, with question marks over how a range of geopolitical factors including tensions in the Middle East and the US presidential election will influence the cost of a barrel of oil. Of course, a related issue centres on price volatility for Very Low Sulphur Fuel Oil (VLSFO), which is currently subject to considerable variations in specification from supplier to supplier.
2. Much will depend on the market for VLSFO stabilising.
Kobbernagel expects the market for VLSFO to settle down in the first quarter. He says suppliers have been reluctant to start selling VLSFO until they see demand from the market. “Being able to have a decent turnaround on a barge is important and as such, the transition has been delayed to the last minute.”
Norwegian Oil Trading expects a range of about $520-620 tonne for VLSFO, with variations between ports. Heavy Sulphur Fuel Oil will range between $100 and $200, the company says. Kobbernagel believes that prices will reach a more sustainable level as suppliers roll-out their VLSFO plans. “We should see competition pick up, which will drive down prices compared to Low Sulphur Marine Gas Oil.”
3. Variations in how Sulphur 2020 is enforced could have an impact.
Whether the new regulations will be enforced effectively by authorities globally is another area that is far from clear as January looms. “Some countries have more resources than others and strict regimes in place – with plans and fines for non-compliance,” explains Kobbernagel. “But it’s not always clear how fumes will be measured – is it from the funnel, or engine inlet? Will they test a MARPOL sample? Approaches will vary.”
4. Availability of low sulphur fuels will be an issue.
More VLSFO fuel is expected to become available in 2020. So far, there have not been indications there will be insufficient VLSFO. Kobbernagel says: “Overall, there should be availability of a compliant fuel of some sort, but the fuel ‘puzzle’ has become more complicated. Ship owners and operators may be forced to bunker at alternative locations at higher costs than anticipated,” he warns.
5. Whether scrubbers are adopted more widely will depend on HSFO prices.
The attractiveness of scrubbers as a technology is likely to be contingent on the price of High Sulphur Fuel Oil (HSFO). If HSFO is available on the market at a significant discount to low sulphur alternatives, the economics of introducing more scrubbers to a fleet will start to stack up, Kobbernagel explains.