Low Sulfur Demand Rises Up To 50% of the U.S. Market

The supply and demand balance for both high and low sulfur product had changed.

Demand for low sulfur bunkers in the U.S. has risen to as much as 50% of the total U.S. market since the August 1, 2012 introduction of the North American Emissions Control Area (ECA), according to a Platts Podcast on Friday.

All ships operating within the ECA, effectively a 200 nautical mile zone off the U.S. and Canada coastlines, must use a marine fuel with a sulfur content not exceeding 1.00% by weight.

Platts' associate editor Joshua Starnes said before the introduction of the ECA, demand was estimated at 15% to 20% of the 108 million barrels per year U.S. market.

But since the ECA has come into effect, demand has "increased rapidly beyond expectations" with traders in some ports reporting 40 to 50% of their daily volume is low sulfur product.

This in turn has sent the premium for the ECA complaint fuel "sky rocketing" from the approximately $100 per metric tonne (pmt) level just prior to the ECA introduction.

Between August 2 and August 16 the premium was $125 pmt on the Atlantic and Gulf coasts and $280 on the West Cost.

Taken by Surprise

"That increased demand has taken suppliers by surprise," said Starnes, and has required reallocation of resources and infrastructure, and changes in buying and production patterns in order to keep up with demand.

Prior to August 1, fuel oil imports and production had been focused on high sulfur fuel oil, with low sulfur fuel oil heading to Europe where there was demand.

Gulf Coast refiners are now producing more low sulfur product, and East Coast suppliers who have less refining capacity, particularly for fuel oil, were said to be sourcing low sulfur fuel oil for blending from Latin America and Africa.

Platts' associate editor Meera Patel said questions remain on how long low sulfur demand levels can be sustained and whether they accurately reflect the market going forward.

Some sources said it was possible that ship owners have begun to build up shipboard stocks of low sulfur fuel, rather than simply buying what they needed from port to port, and if that was the case then demand should fall off.

"It may take until the end of the year to know for sure," said Patel.

Supply and Demand

One certain impact, she said, was that buyers and suppliers have had to segregate their holding tanks to separate low sulfur and high sulfur product, thus reducing the total amount of supply and demand for the high sulfur fuel.

But while there had been a shift downward in demand for the high sulfur product, Starnes said it was difficult to tell if that was because of the demand for 1%.

According to Platts data, premiums are currently as high as $285 in Vancouver, or $157 pmt under marine diesel compared to $300 to $400 pmt under marine diesel for the high sulfur product.

"This tells you just how high the 1% bunker levels are getting out there," said Starnes.