Analyst believes cost of bunker fuel will climb (file image/pixabay)
The tougher global sulfur cap on bunker fuel, in place in under two years' time, could land shipping with an extra $24 billion for fuel roughly a quarter more than it is currently paying.
Analyst Wood Mackenzie puts its "base case" for cost increases at $24 billion in 2020, compared with a total global shipping fuel bill of roughly $100 billion today, Reuters reports.
However, if no vessels added scrubbers and all ships complied with the rules, the spike could be as high as $60 billion, according to the analyst.
Scrubbers, or emissions abatement technology, allow ships to continue to use cheaper high sulfur bunker fuel thereby keeping the overall fuel bill lower. Equally, a high incidence of non-compliance would mean more ships using the less expensive, high sulfur product.
"Switching to marine gasoil (MGO) is a more costly solution, and in full compliance, would probably see freight rates increase, perhaps by around $1 a barrel," Wood Mackenzie senior research analyst Iain Mowat was quoted as saying.
If no vessels added scrubbers and all ships complied with the rules, the spike could be as high as $60 billion
According to Mowat, while shippers could expect a 20-50% return on investment cost for installing scrubbers, the penetration rate for them would be limited by factors including limited access to finance, scrubber manufacturing capacity and dry-dock space. Wood Mackenzie estimates just 2% of the global fleet will have scrubbers by 2020.
As a result, Wood Mackenzie said the world's refiners need to gear up to churn out the lower sulfur fuels that vessels will need, and even the primary spots for refueling ships could shift based on where lower sulfur fuels are available.
"Singapore, for example, could potentially lose some of its market share for bunker fuels to China as shippers look for alternative locations with a surplus of compliant fuels," said Mowat in quotes. "China, with ample MGO supply, is well positioned to attract shippers," he added.