ANALYSIS: How Much More Expensive Are IMO2020 Bunkers Really?

The many months of speculating what the cost of IMO2020 grade bunkers will be are over. November has seen a surge in availability of 0.50% sulfur product and with 48 days to go before the new fuel rules come into force Ship & Bunker already offers indications for VLSFO at over 100 ports - a marked increase from just a few weeks ago.

With vessels now lifting and burning IMO2020 grade bunkers, how much more expensive are they than IFO380, which until now has been by far the industry's most popular grade of fuel?

The Short Answer

Looking at current price levels, buying VLSFO today means you'll be paying 14-18% more for bunkers than you were at this point last year.

HSFO is currently priced at $197 to $236/mt lower than VSLFO.

Analysts have been predicting IMO2020 will lift bunker prices by 20-40% while scrubber advocates have been working on HSFO priced at a discount to VLSFO of $200-$250/mt. What we are seeing is very much in line with that, and even better for VLSFO buyers & suppliers is that the reality is prices are lower than expectation.

The Long Answer

There are two ways to look at the cost increase of IMO2020 fuel:

1. How much more is expensive is VLSFO vs IFO380 today? This is important for owners / operators looking to understand what the real cost increase will be if they take the jump and lift 0.50%S today, as well as for tracking market dynamics such as ROI for scrubber retrofits.
2. How much more expensive is VLSFO than IFO380 last year? In other words, how much more will I be paying for fuel this year vs last. This is important to understand what IMO2020's "real" financial strain on the market is, relevant for everything from changes to BAFs to gauging how much more credit the market will need to buy bunkers.

While VLSFO has been available in some ports since the summer, supply in most ports has been far more recent. For this analysis, then, we will look at the average bunker prices in the period November 1 through 12 in both 2018 and 2019 as tracked by Ship & Bunker's two main price indices:

• the Global 4 (G4) index that tracks the average price of bunkers at the 4 major ports of Singapore, Rotterdam, Houston, and Fujairah
• and the Global 20 (G20) index that tracks the average price indications from 20 major global bunkering ports that together are responsible for a vast majority of global sales volumes.

VLSFO vs IFO380 Prices Now

For the November 1-12 period in 2019 the average G4 IFO380 price is $318.13/mt and the G4 VLSFO price $554.56/mt  - $236.44/mt (74%) higher.

Widening the view to the G20 index, IFO380 for the period is $365.13/mt and VLSFO $196.63 (54%) higher at $561.75/mt.

Looking at the cost relative to crude: IFO380 is priced at a discount to Brent of 32% for the G4 index and 22% for the G20 index. VLSFO is priced at a premium to Brent of 18% for the G4 index and 20% for the G20 index.

IFO380 Prices Last Year vs VLSFO This Year

The G4 IFO380 average for the period in 2018 was $471.19/mt, and $493.81/mt for the G20 IFO380 index. These are a discount to Brent of just 13% and 9% respectively - bunker prices relative to crude at this point last year were unusually high.

Comparing last year's IFO380 prices to VLSFO this year shows the IMO2020 grade fuel is $83.38/mt (18%) higher than IFO380 for the G4 index and $67.94 (14%) higher for the G20 index.

IFO380 Price Change Year on Year

This year IFO380 prices for the period are $153.06/mt (32%) lower year-over-year for the G4 index ($471.19/mt in 2018 vs $318.13/mt in 2019) and $128.69/mt (26%) lower for the G20 index ($493.81/mt in 2018 vs $365.13/mt in 2019).

Conclusion

As expected IMO2020 grade bunkers are more expensive than IFO380; the brutal facts of blending the new 0.5%S bunker fuels have already been discussed on Ship & Bunker, while for HSFO, there are only 48 days left for anyone but the relatively few owners of scrubber equipped tonnage to burn them. Demand and pricing reflect this.

For those switching to complaint fuel, the positive is that VLSFO prices are "only" 14-18% higher than the IFO380 they were buying last year. This is lower than the 20-40% premium many in the industry have been predicating. This can only be good news for all stakeholders - buyers and suppliers alike.

For those who have chosen the HSFO + scrubber route to compliance, there is also good news. They will be paying less for bunkers than they were last year, and the discount for HSFO to VLSFO in dollar terms is (just about) in the $200-$250/mt band many owners have based their scrubber retrofit ROI calculations on.

Of course, this is only a snapshot of current price levels and the picture may well change as we move even closer to the January 1, 2020 start date of IMO2020.