Shipping & Finance »The market will be in complete chaos« Scrubbers, residuals, payback and blending – the »sulphur cap« creates huge discussions, i.e. about both technical and financial aspects for shipowners and fuel suppliers. For HANSA, Barry Parker collected views and talked to industry players By now, shipping readers are all too familiar with »D Day« (De-Sulphur Day), slated for January 1, 2020. By way of background, maximum sulphur content (mass) in marine fuels in most geographies is currently 3.5%. On January 1, 2020, maximum sulphur content will ratchet downward to 0.5%. Indeed, at a late June conference in New York, Nicolas Busch, CEO of diversified shipowner Navig8, said that discussions of such strategies for coping with the new regulations were now the most attended at such events. On the economic side, great uncertainties surround the price of fuels. In the words of Paddy Rodgers, CEO of tanker company Euronav, speaking at the same event, »the size of the disruption that’s coming will be mind boggling.« He went on to say that »the residual fuel market is about 7 mill. bbl/day and the bunker fuel portion is about 4 mill. bbl/day.« However, there is no consensus on how to best comply with the low-sulphur regulation, with proposals ranging Photo: Marine Money The one-time oil trader Nicolas Busch, CEO of Navig8 estimates the price advantage of low sulphur blends between 70 and 100$/t from scrubbers, various low-sulphur fuel blends, and even LNG as fuel. Phillip Verleger, a noted energy economist, wrote in an opinion piece, that: »The problem is that oil refiners may not be able to supply enough of the low-sulphur fuel by 2020. There are too few sophisticated plants that can make the required marine gasoil without also churning out noncompliant fuel oil as a byproduct.« He expressed further concerns that these constraints butting head-on into a tightening oil market, with refiners playing catch-up until at least 2022. Hamish Norton, the CEO of Star Bulk, said that the large Greek bulk carrier owner that will be installing scrubbers on 22 vessels explained the straightforward reason: »We certainly hope that the scrubbers will allow us to burn cheaper fuel … which we hope will give us a competitive edge in the market.« Navig8-CEO Busch also painted a positive economic case for scrubbers (with a quick investment payback) but stated that, due to constraints in supply, »not everyone who wants a scrubber will be able to get one.« Paddy Rodgers said, »the residual fuel pricing situation will be very dynamic, but, in a desktop exercise, it looks like you could make a very quick payback on a Photo: Concordia 146 HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 9
Shipping & Finance Photo: Euronav Photo: Marine Money Euronav-CEO Paddy Rodgers: »The size of the disruption will be mind blogging« Hamish Norton, CEO of Star Bulk chooses scrubbers for »his« fleet scrubber.« But quick payback is not guaranteed; Rodgers did hint at possible spanners in the works – traders might store residual fuel, or refiners might »use it as a feedstock for upgrading through their own facilities.« Norton of Star Bulk used different words, saying: »I think that for Q1 2020, the market will be in complete chaos.« Increasingly, a view is emerging throughout the industry that the price of low-sulphur diesel and gasoils will rise. It is by no means a certainty that refiners will be able to supply the needed fuels, at least initially on January 1, 2020, and likely with difficulties in the months following. Kim Ullman, CEO of tanker owner Concordia Maritime, told HANSA: »There is a price established already on the paper/term market and that is roughly 350 $/t which, in turn, is ca. 100-150 $/t higher than today’s physical.« Ullman got into specifics of the price spread, saying: »However, there is no doubt in my mind that this can spike, temporarily, even further between now and 2020, maybe in the 4-500 $ range. Again however, and there will be a lot of »however«, when the oil/ trading community have started to come up with a) alternative use of HFO and b) successful blends.« Navig8-CEO Busch, after identifying marine gasoil (MGO) as the lowest risk fuel – but also the most expensive –, said: »The challenge is how do we move shipowners to sail towards low-sulphur fuel which has a terrible reputation today – even though it doesn’t exist.« The onetime oil trader estimated the price advantage of low-sulphur blends (compared to MG) of between 70 and 100 $/t. Aboard: new procedures Economics and spreads aside, there are practical considerations surrounding the introduction of new fuels. As new blends come into the marketplace, vessel crews will have greater responsibilities. Exxon- Mobil’s marine Fuels Technical Advisor John R. LaRese – describing fuels that had been developed for ECAs to meet tighter sulphur rules – said at the CMA-conference (Connecticut Maritime Association) »these ECA fuels are excellent fuels, but the compatibility with residual fuels is not great so there was a need to educate ship crews about fuel segregation and management.« John Stirling, Marine Technical Quality Manager, World Fuel Services, added two more key watchwords to compatibility: stability and wax. The International Bunker Industry Association (IBIA) noted in its write up of the CMA session: »Stirling reminded the audience that no supplier will guarantee that the fuels they supply are compatible with other fuels today either, so this is not new, but ships’ crews need to be aware.« The IBIA pointed out: »As for 0.50% sulphur S laced ed ge, logo losing en ges SHIP MANAGEMENT QHSE OPERATIONS We strive to be the ship management provider of choice for the shipping industry be olours uires e the Anglo-Eastern (Germany) GmbH Raboisen 28 , 20095 Hamburg, Germany T. + 49 40 - 21 00 700 100 | aesm.ger@angloeastern.com www.angloeastern.com | An Anglo-Eastern Univan Group Company IT SYSTEMS EDUCATION & TRAINING CREW MANAGEMENT AngloEastern 181x65.indd 1 15.08.18 09:09HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 9 147
