Most Now Think the Global Sulfur Cap in 2020 is More Likely Than Ever - But There Are Bigger Questions to be Asked: Meech

Meech says the availability of compliant fuel is no longer the key question for 2020. Image Credit: Robin Meech

With the maritime and bunker industries eagerly awaiting a decision on whether a 0.50 percent global sulfur cap for bunkers will come into force in 2020 or 2025, Marine and Energy Consulting Limited's Robin Meech, who is also the new Chairman for the International Bunker Industry Association (IBIA), says the 2020 date is, now, the more likely of the two.

The decision is expected to be made later this year by the International Maritime Organisation (IMO) following a fuel availability study that aims to determine if enough compliant 0.50% sulfur product will be available - a factor that Meech says is no longer the key question.

"In recent years refinery expansion in the Middle East and Asia has been more strategic, but global distillate take-up has been less than expected so there is more capacity to make diesel," he told Ship & Bunker.

"I think the real issue is can we get rid of all the residual?"

Indeed, as oil and bunker industry veteran Dr Rudy Kassinger has previously noted, delaying the cap by five years would do very little to help refining deal with the potential excess residual, estimating it would take another 50 years and at least $100 billion to convert all the residual fuel no longer being used by the marine industry into clean products.

Another factor in play highlighted by Meech is the fact there is currently little motivation for refining to even start its process of looking to repurpose residual until it knows what the respective demand of fuel oil and distillate will be, and that will depend greatly on when the cap is introduced, which in turn is a function of how fast the uptake of scrubbers will be.

Nevertheless, the estimates that have been made as to potential demand highlight another issue for bunker buyers.

"In 2019 marine will see a 75 / 25 percent split between residual and distillates, representing 47 percent and 5 percent of global demand respectively," says Meech.

"After the introduction of a global 0.50 percent global sulfur cap if this in 2020, the split is estimated to shift to a 30 / 68 percent, with the remaining 1 to 2 percent being alternative bunkers, mainly LNG. That would represent 25 percent of global demand for residual, and crucially only 5 to 12 percent of global demand for distillate. In other words, distillate prices will be set by the inland market, and marine would no longer be the main user of its preferred bunker product.

"I think the question marine has to ask itself is, how will it manage its price risks in this new market environment?"

With the 69th session of the IMO's Marine Environmental Protection Committee (MEPC 69) meeting this week in London, the industry can expect at least some small steps to be made towards a decision on the global cap, with groups including the International Chamber of Shipping (ICS), in line with most organisations, wanting IMO to commit to making a final decision over the date at MEPC 70 in October.