Prepare for Soaring Prices For "Fuel of Choice" MGO in 2020: BRS

A new report by BRS' Tanker Department concludes that there will be enough compliant fuel available for the fleet.

A new report prepared by Barry Rogliano Salles' (BRS') Tanker Department concludes, upon the implementation of a global 0.50 percent sulfur cap in 2020, there will be enough compliant fuel available globally to meet the needs of the global fleet, with low sulfur MGO-type fuels set to become the bunker "fuel of choice."

However, the BRS report suggests that, alongside a surge in demand for low sulfur MGO, the prices of these fuels will "soar to steep premiums over fuel oil, which is expected to experience a collapse in demand."

"Moreover, the projected steep increase in the price of middle distillates will see consumers with the least ability to pay increased prices squeezed out of the market. The analysis also acknowledges that such a swift switch towards the use of low-sulphur middle distillates will also have significant ramifications across the global oil supply chain."

The report also estimates that demand for oil-based marine fuel for international navigation will increase from 3.88 million barrels per day (bpd) in 2016 to 3.93 million bpd by 2020, which is noted to be "significantly less" growth compared to the previous couple of decades, and is attributed to the impact of energy efficiency improvements, larger vessels being used to transport cargo, and the increasing use of alternative fuels.

Expectations for Hybrid Fuels

BRS suggests that so-called hybrid fuels, which are currently used for compliance in emission control areas (ECAs) and are priced between HFO and MGO, may not account for as large an amount of the low sulfur bunker demand in 2020 as many currently expect.

While such fuels may be suitable for vessels on fixed routes, BRS says that, without standardisation, hybrid fuels cannot offer the flexibility needed for vessels operating on non-fixed routes.

Further, BRS notes that use of such fuels would require large amounts of ultra-low sulfur cutter stock to either be produced from a crude with less than 0.50 percent sulfur or have its sulfur removed.

"Considering that the deadline is little more than 3 years away, and the long lead time for building refinery desulfurization units, there is not enough time to build new refinery units to complete this task," explained the report.

The Future of LNG

The report also suggests that, while use of liquefied natural gas (LNG) as bunkers will increase amid the new 0.50 percent sulfur cap, this will only apply for certain vessel types, with LNG accounting for only 6 percent of total bunker demand into the 2020 forecast period.

While BRS' report notes that LNG would satisfy stringent regulations on SOx, NOx, and particulate matter emissions, the fuel's adoption is still hindered by a number of challenges including underdeveloped legislation, nascent infrastructure, and low oil prices.

"It also has a low energy content compared to oil-based fuels and thus the onboard tanks are voluminous in comparison," adds the report.

Further, although construction costs have fallen recently, BRS notes that newbuild LNG-powered vessels cost 20 to 40 percent more to build than conventional-powered vessels.

"Although LNG retrofitting in not an option due to poor economics and until now few LNG-powered oil tankers have been constructed, many orders have been made for duel fuel vessels where advances in ship design have permitted the installation of on-deck LNG bunker tanks," explains the report.