Shipping—let battle commence
Competition to provide ships with a low-sulphur alternative will hot up as the IMO deadline approaches. It's not clear which fuel will win
The battle between competing fuels for shares of the marine propulsion market when the International Maritime Organization's (IMO) 0.5%
sulphur-fuel content limit becomes effective in 2020 is heating up. On current trends, fuel oil may well maintain its primacy over marine gasoil and new competitor liquefied natural gas.
International organisations pondering the outlook for the marine fuels market, which is estimated to account for up to 5m barrels a day of world oil use, have differed on the outlook for fuel oil demand. Marine fuel oil use accounts for about 63% of world fuel oil consumption, and quality restrictions on fuels used by land-based consumption will likely increase that proportion.
International Energy Agency (IEA), which groups most leading oil consuming nations, forecast in 2016 that up to 2m b/d of marine demand could switch from fuel oil to gasoil as soon as 2020. Opec, though, indicated in its 2017 World Oil Outlook that it expects not more than a 200,000-b/d shift from fuel oil to gasoil over the longer term.
Industry participants, meanwhile, believe compliance with the new regulations and any significant shift in fuel preferences will be dictated, often brusquely, by the market as most parties affected by the change—oil refiners, bunkering companies, and shippers—are continuing a short-term "business as usual" course in the expectation that adequate fuel oil and emissions control technology will be available.
55—Number of LNG-bunkering delivery points available worldwide
"People will try to be as compliant as humanly possible", says Adrian Tolson, senior partner of
20/20 Marine Energy, a consultancy which advises the shipping and bunkering industry and governmental bodies. But Tolson expects the marine-fuels market to be "pretty chaotic for the first six months, if not the first year" of the new sulphur limit's implementation.
The fuel oil market is already reflecting an expected decline in demand in its forward curves. CME High-Sulphur Fuel Oil (HSFO) FOB Rotterdam Barge futures point to a 23% price fall by end-2020, while Singapore 380 CST Fuel Oil prices are indicating a 21% drop over the same period. Market participants suggest the declining forward curves, besides reflecting the oil market's overall backwardation, are starting to reflect the relative value of HSFO in a market where blending costs are likely to increase as more expensive lower-sulphur blendstock is added to the fuel oil pool, and to compensate for the cost of new emissions abatement technology such as scrubbers.
The relative paucity of low-sulphur crude oils, and therefore of low-sulphur fuel oil (LSFO), compared to higher-sulphur feedstock, means that HSFO consumption can't just be substituted by LSFO use. For the moment, however, the forward curves for gasoil, which is expected to provide much of the low-sulphur blendstock to bring HSFO sulphur content down to meet the coming IMO sulphur requirement, don't show a rise, notes Andrew Laven, regional manager for Middle East and Africa at the
Bomin Group, a bunkering company with operations worldwide.
Laven suggests that this may in part reflect increased supply of gasoil in Europe, where key refiners, including oil majors
ExxonMobil and Total, as well as historically prolific Russian refiners, install additional deep conversion units at their plants, while North American distillate exports increase. Gasoil is already an increasingly common shipping fuel in the Emission Control Areas (ECAs) in the Baltic, large parts of the US coastline and Caribbean, and China, which has established ECAs in the waters around its major ports. Gas-powered ships
While gasoil and fuel oil search for a balance in the new marine fuels emissions regime, LNG is emerging as a potential new maritime fuel. Unlike oil products, LNG addresses other issues the IMO is expected to emphasise in future, including nitrogen oxide particulates and carbon dioxide emissions. The current world surplus of LNG, with additional liquefaction trains coming on stream regularly and consequent weak pricing, makes it superficially attractive. But it requires new engine and onboard fuels technology and, more especially, new logistics.
While LNG vessels have long used their cargoes' boiloff gas as a fuel, LNG's very high capital-expenditure requirements—on natural gas liquefaction and regasification and specialised shipping and its development as a point-to-point delivery market with relatively little flexibility—make it difficult to adopt for many shipowners, industry officials say. One bunker industry official points out that his company currently serves shipping at 800 delivery points worldwide, compared with less than 55 available LNG-delivery points. Another notes that while LNG terminals can be easily adapted to serve shipping in historical LNG markets such as Spain, the large capital spending required to launch LNG bunkering will discourage its adoption in less developed markets.
Nonetheless, two of the world's three largest bunkering markets, Singapore and northwest Europe, are already well on the way to establishing active LNG-bunkering industries. Singapore in 2017 issued its first Technical Reference Standard for LNG bunkering, allowing among others
Pavilion Gas, in partnership with Total, and FueLNG, a Shell partnership, to be active in LNG bunkering. In December, Singapore's Maritime and Port Authority added $12m to its funding for the building of more LNG infrastructure. Such major bunkering markets' installation of LNG infrastructure may speed the way for its widespread adoption.
In northwest Europe, during 2017 utility
Engie and Shell took delivery of purpose-built LNG bunkering vessels, while Finland's new Tornio LNG-import terminal is designed to provide bunkering services. Further, leading oil-storage companies Vopak and Oil Tanking received EU merger approval to proceed, in partnership with Dutch gas infrastructure firm Gasunie, to build a "multiservice" LNG terminal in northern Germany. In Spain, national transmission company Enegás has been actively promoting LNG-bunkering activities at the country's six regasification terminals. LNG industry officials believe that the development of small-scale LNG facilities for bunkering and industrial facilities will be a key feature of future rising LNG demand.
Bunkering industry officials believe that early adopters of LNG as a fuel will include point-to-point shipping of all sizes, from ferries to cruise shipping, as well as companies wishing to burnish their environmental credentials in an industry now addressing emissions limits which have already challenged its onshore counterparts.
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