The global 0.5% low sulphur cap for marine fuel, or IMO 2020, is now almost upon us and the majority of owners are set to comply using very low sulphur fuel oils (VLFSO) or gas oil.
“Out of the total merchant fleet, about 1% is powered by LNG, which is already a compliant fuel. In addition, several thousand vessels worldwide have had scrubbers installed (and installations are expected to continue well into 2020),” brokers Poten & Partners commented in their weekly report.
Many larger owners have locked in compliant fuel stocks to reduce their exposure to a potentially volatile market pricewise for such fuels.
While major shortages of compliant fuel do not appear to be expected those buying without contracts could find themselves paying high prices. “However, in the short term, disruptions are likely and current pricing signals indicate that if a shipowner needs to buy compliant fuel on the spot market, he will need to pay premium prices,” Poten said.
Meanwhile falling high sulphur fuel oil (HSFO) prices mean a widening fuel spread which is set to benefit owners who have gambled investment millions in installing scrubbers on their vessels.
“That IMO2020 is already well underway can be seen from recent movements in bunker prices and using MSI’s latest forecasts at current price spread levels, we expect substantial premia on scrubber-fitted vessel earnings next year,” said Adam Kent, managing director of Maritime Strategies International (MSI).
“So far price dynamics are adhering to our view that there won’t be a huge price spike in low-sulphur fuel, but rather the spread will be driven by falling HSFO prices.”
Although MSI put the price between HSFO and VLSFO at around $200 per tonne, significantly lower than a near $300 spread per tonne quoted by Poten for Rotterdam, these level will still give handsome returns for owners.
On an annual basis a 13,000 teu containership consuming 100 tonnes of fuel per day would save around $17,400 per day at $200 tonne price differential, and $26,000 per day savings at $300 per tonne average across the year. This is good news if you are MSC, which is installing more scrubbers than any other container line, and not such as good news if you are Ocean Network Express (ONE), which has not installed any exhaust gas cleaning systems on its vessels.
For a capsize bulker MSI put savings at $6,500 per day for a $200 spread and $9,700 per day for a $300 spread over a year, and for a VLCC savings of $15,000 and $23,000 per day respectively.
“Our spread projections may appear conservative given the upheaval in the markets, but they reflect annual average prices. The first half of 2020 is likely to be more volatile and given the rapid decline in HSFO prices, MSI expects more exaggerated price differentials in the first quarter of 2020,” said Kent.