Implementing ECAs Expected to Cause Massive Fuel Price Distortions

Ships are now looking to switch to marine gas oil in ECAs. 

If history is any example, the implementation of Emission Control Areas (ECA) in 2015 will cause massive fuel price distortions as the industry attempts to adjust, according to a report by U.S. shipbroker Charles R. Weber Company, Inc., Hellenic Shipping News reports. 

Beginning next year, sulfur content in marine fuel used in ECAs cannot exceed 0.10 percent by weight, down from the current limit of 1.0 percent.

"When the max 1.0% sulfur content regulation was phased in, availability issues prompted a wide price differential between more traditional 3.0% sulfur HSFO 380cst bunkers and 1.0% LSFO 380cst bunkers - which at times well exceeded $100/mt," said the report.

"The LSFO premium eventually declined to levels closer to HSFO as availability issues subsided. Presently, the spread between average HSFO and LSFO bunkers is $58/mt."

C.R. Weber is now predicting that initial lack of availability will cause similar price differentials as the industry shifts away from fuel oil grades and towards marine gas oil grades, which has a lower sulfur content. 

The shipbroker added that routes which trade on Worldscale fixed rate differentials will have their increased prices offset. 

However, routes note trading on a Worldscale basis may see massive price jumps as separate agreements will have to be made. 

"The corresponding added cost for charterers could add complications to arbitrage traders - with economies of scale implying a greater impact on trades involving smaller tankers than their larger counterparts," said C.R. Weber. 

Alternatively, some companies have chosen to invest in solutions such as liquefied natural gas (LNG) or scrubber technology, for compliance with the new ECA rules..