There is still a huge amount of uncertainty as the International Maritime Organization's new global sulfur limit rule for marine fuels inches closer. The date will not change and bunker industry players will have to act fast.
S&P Global Platts Editor Surabhi Sahu takes a look at what some players in Asia are already doing in preparation for IMO 2020, with more insights to be shared at the APPEC 2018 conference.
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Less than 16 months remain for the International Maritime Organization's global sulfur limit rule for marine fuels. So let's take a look at how players in Asia are responding to it.
According to some, compliance is expected to be at only 70%-80% initially due to the ensuing chaos and lack of preparedness for this rule, which is set to cost the industry as high as $60 billion worldwide.
Some 60% of bunkers will also have to switch from HSFO to 0.5% sulfur overnight. Ship operators therefore need to devise an optimal strategy.
They need to ask themselves: Where am I trading? What ports do I call? What product is available there, what is the quality and the chemistry of fuel I am loading? How do I store and manage the fuel onboard? And how can I train my crew to operate the vessel with that fuel correctly?
There are three main marine fuel choices - 0.5% sulfur fuels, HSFO with scrubbers, and alternative fuels, primarily LNG to comply with the rule.
In Asia, South Korea's HMM said in April it was considering using LNG bunkers or installing scrubbers on some of its newbuilds.
In July, Taiwan's Yang Ming Marine said the use of LSFO was the intended solution for now. However, it did not rule out options like scrubber installation and LNG.
Hong Kong's Pacific Basin Shipping has also recently said it was assessing LSFO versus scrubbers while Jinhui Holdings said it was opting for LSFO, which it thought was the most efficient way to tackle the issue.
0.5% sulfur bunker fuels might seem to be the easiest way to comply. However, the lack of enough supply could stand in its way.
In addition, there are questions around using blended fuels because of stability and compatibility issues.
Using scrubbers and LNG bunkering is also not without challenges.
The availability of HSFO for scrubber-fitted vessels, particularly at small ports, could be limited if the overall fleet of scrubber-fitted ships remains small.
Retrofitting an existing ship with an LNG engine is also prohibitively expensive while uncertainty looms about presence of adequate LNG infrastructure globally.
Refiners also have to come up with a supply side response quickly. Many are opting to produce more IMO 2020 compliant bunker fuels, investing in desulfurization units and upgrading refineries. Some are also becoming involved in financing scrubber's installation in return for a long term HSFO supply contract.
We'll talk about this and other key issues in the petroleum industry at the APPEC 2018 conference from September 24-26 in Singapore. We hope to see you there.
Until next time on the Snapshot, we'll keep an eye on the markets.