In a Tight Post-2020 Market, Marine Won't Be Outbid by Inland Distillate Buyers: Kassinger

by Ship & Bunker News Team
Wednesday May 17, 2017

In the event of a shortfall in compliant product for the post-2020 bunker market, it is unlikely Marine will be outbid for fuel by the inland markets, industry Veteran Rudy Kassinger has told Ship & Bunker.

With a 0.50 percent sulfur cap on bunkers coming into force in 2020, early signs are that the majority of operators will switch to burning compliant distillate product to meet the new rules.

To understand exactly what the shift might look like, Marine and Energy Consulting Limited's Robin Meech last year told Ship & Bunker that in 2019 Marine is expected to see a 75 / 25 percent split between residual and distillates, representing 47 percent and 5 percent of global demand respectively.

After the introduction of theĀ 0.50 percent global sulfur cap in 2020, the resid / MGO split is estimated to shift to 30 / 68 percent, with the remaining 1 to 2 percent being alternative bunker fuels such as LNG.

"That would represent 25 percent of global demand for residual, and crucially only 5 to 12 percent of global demand for distillate. Marine would no longer be the main user of its preferred bunker product," he said.

Such a situation naturally raises the prospect of increased pricing risks for the marine fuels markets coming from events taking place in the inland markets.

And while the official IMO Fuel Availability Study has concluded there will be enough compliant product to satisfy Marine's demand in 2020, BIMCO are among several high profile voices who have suggested otherwise.

In any event, should there be a tight supply of compliant product in 2020, Kassinger says Marine will not be outmuscled by the inland markets.

"I believe that come 2020 there will be enough low sulfur fuel available, but there may be more intense competition for the MGO between Marine and the inland markets. In that competition, Marine wins," Kassinger told Ship & bunker.

"For example a 10,000 TEU container ship would generate $1,000,000 cash with a 100$/TEU fuel surcharge. So marine won't be out bid even in a tight supply environment. That said, the best solution for marine is still burning 3.5 percent sulfur fuel oil, likely 500 cSt products, in conjunction with a scrubber."