Demand Increase for Distillates Could Propel North American Bunker Market Growth

North America's bunker market is expected to benefit from the 0.50% sulfur cap on bunkers in 2020.

Alan Gelder, Vice President of Refining, Chemicals & Oil Markets, EMEARC Research for Wood Mackenzie, in a new technical paper, suggests that a push towards distillates, which is expected to be spurred on by a 0.50 percent global sulfur cap on marine fuel in 2020, could increase North America's bunker market as it is one of the lowest cost providers of the fuel.

Gelder explains that, while the current global bunker market is dominated by high sulfur fuel oil (HSFO) that is more expensive in the U.S. than in Europe, North America's position as a low cost source of middle distillates and status as an emissions control area (ECA) means the continent has a high global share of the global gasoil bunker market.

"In light of new marine fuel regulations in 2020, North America has the opportunity to take a much bigger role in the future global bunker market given its capabilities to be a major supplier of ultralow sulfur fuel oil (ULSFO) components and gas oil," said Gelder.

"This will require development of the necessary port and bunkering infrastructure, with the expectation that North America can punch above its weight in global bunker supplies post 2019 if it focuses on capturing the forthcoming opportunity."

This shift is expected to have implications on the global refining system, including a fall in fuel oil demand and resulting lower prices.

As such, Gelder suggests that, among the various options for compliance with the 0.50 percent sulfur cap, the lowest cost option will be the continued use of HSFO, which will require ship owners to invest in exhaust gas scrubbers.

"The market outlook is uncertain, but there will be a shift away from HSFO to gasoil by the shipping sector," said Gelder, adding that there is "a risk that this fuel specification change could be disruptive, but the anticipated market reaction could benefit USGC refiners that have deep conversion/distillate oriented configurations."

Last month, a study by Wood Mackenzie suggested that global bunker fuel costs could increase by as much as $60 billion per year upon the International Maritime Organization's (IMO's) implementation of the 0.50 percent global sulfur cap on bunkers