Demand for Low Sulfur Bunkers in 2020 Will Be Higher Than Previous IEA Estimates, New Survey Suggests

Monday January 16, 2017

A new report published by global banking firm UBS Limited (UBS) indicates 74 percent of shipowners expect to use higher priced low sulfur bunkers to meet the upcoming 0.50 percent global sulfur cap in 2020, rather using alternative methods of compliance, a higher proportion than indicated by earlier International Energy Agency (IEA) estimates. 

The figure comes as the result of a new UBS survey on marine transport, which focuses on the effects new regulations may have on shipping.

"We commissioned this survey due to two recent regulations that will have wide ranging impacts on shipping but also other industries like shipbuilding, capital goods, and refining," explained UBS, referring to the upcoming global sulfur cap and the ratification of Ballast Water Treatment regulations.

According to the survey results, while 74 percent of shipowners are set to opt for using low sulfur fuel for compliance with the global sulfur cap, 19 percent are planning to install scrubbers and carry on using HFO, and 5 percent are planning to switch to liquefied natural gas (LNG).

UBS notes that while the survey's results are in line with public owners' comments, they differ slightly from IEA estimates, which suggests about two thirds of fuel oil demand to be lost to low-sulfur bunkers.

"The winners may be the refining industry as this will represent a larger call on low sulfur fuel; however, current refining infrastructure may struggle with the logistics of meeting this new demand," said UBS.

"With most owners opting out of scrubbers, those owners with 'Eco-type' vessels will also likely win in this scenario."

The survey results also found that, while scrubber technology is seen as expensive at the moment, most owners expect that both cost and install time will decline as 2020 draws closer, leaving many to suggest that there is value in waiting before deciding on whether or not to invest in scrubber technology.

Further, with fuel costs often passed onto the charterer, UBS suggests that scrubber installations will not be able to similarly guarantee that vessel owners will be able to charge a premium rate to compensate for the capital expense.

As part of the same report, UBS also suggests that tightening regulations on shipping emissions, as well as new ballast water management (BWM) rules, will lead ship owners to step up scrapping of vessels that are 15 years and older.