2020 Sulfur Cap for Bunkers Could Be "Final Nail in the Coffin" for Asia Fuel Oil Trading: Analyst

Thursday March 9, 2017

Yaw Yan Chong, Director of Oil Research in Asia at Thomson Reuters, says that the upcoming global 0.50 percent sulfur cap on bunker fuel from 2020 could be the "final nail in the coffin" for the fuel oil trading market, Straits Times reports.

Yaw's comments came at a fuel oil trading and hedging seminar at the Singapore Exchange on Tuesday.

Asia's fuel oil trading market has been suffering from poor margins "for the past two to three years," he says, with demand having fallen 20 percent between 2011 and 2016.

Average monthly fuel oil imports into East Asia last year were 6.92 million tonnes, down from around 8.5 million tonnes between 2011 and 2012, he added.

While 0.50 percent fuel oil blends are currently under development, their supply is expected to be limited and beyond 2020 only vessels fitted with an exhaust gas scrubber will be able to burn the same HFO they buy today.

How many vessels will take this route remains unclear, although a recent report from UBS Limited (UBS) found 19 percent of shipowners are planning to install the technology.

Still, Yaw agrees with the general consensus that, come 2020, most operators will switch to using MGO resulting in a massive shift away from fuel oil as the dominant bunker fuel.

"Come 2020, we expect to see most of the market turn to marine gas oil or gas oil as the new shipping fuel on the grounds that it is probably the least painful alternative," said Yaw.

"This could well sound the death knell for fuel oil as a widely-traded commodity."

Despite this, Yaw is upbeat on Singapore's commodity trading future. 

"The environment here is conducive for trading - whether it's fuel oil, diesel or crude - and it has been proven. So even if demand moves from fuel oil to gas oil, you'll just be trading gas oil from here," he said.

"It's just that the guys trading fuel oil will then have to learn to trade a different product. But they would still essentially be trading within the same ecosystem and the same community. So there are opportunities, you just have to be savvy enough to see it."

Last month, a study released 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.