Global demand for marine fuels could grow by as much as 25% to touch 300 million mt next year, if economic growth improves, helping to revive key shipping segments, such as box ships, tankers and dry bulk carriers, Carlos G Torres, Global Head of BP Marine Fuels told S&P Global Platts this week.
"The assumption here is that with a healthier economy the need to move cargoes fast will require vessels to speed up and bunker consumption will increase as a result," Torres said.
Global demand for marine fuels has been trending down in recent years because of weak macroeconomics that created a financially challenging environment. This had made it increasingly difficult for shipping companies to manage their operating costs.
Slow steaming and new and more efficient engines have also negatively impacted bunker demand growth.
With the exception of Singapore and Panama, which are likely to show some growth this year, most ports are likely to record a contraction in bunker sales volumes, with some estimates pointing to a year-on-year decline of 3%-5% in 2016 due to sluggish demand, Torres said.
EYES ON IMO DECISION THIS WEEK
While a recovery of the global economy was expected with the International Monetary Fund in its October 2016 World Economic Outlook projecting a 3.4% growth in 2017, the real game changer for the bunkers market would be the International Maritime Organisation's impending 0.5% global sulfur cap.
IMO members are in London this week to discuss a timeline for the implementation of the cap. After a decision is taken on implementation -- be it from 2020 or 2025 -- a lot of the conversations will shift from pricing to supply availability of 0.5% compliant fuels, Torres said.
Once the IMO determines the timeline, there will be clarity among refiners how to scale their operations. The new standard specifications will also lead to a lot of activity around compatibility and stability of different fuels, Torres said.
"As we learned during the roll out of the 0.1% low sulfur fuel oil, the number of incidents where fuel quality was an issue are far lower now, the same also applies to the current high sulfur fuel oil, there are less quality related issues [now] than ... 10 years ago," Torres said.
The 0.5% global sulfur cap could reduce quality issues further as the portfolio of fuels will have a greater participation of fuels that do not require as much blending to meet the specifications, said Torres, adding that there was no single solution for 2020 and a portfolio of fuels will emerge.
High sulfur fuel oil will still be used, but with the assistance of scrubbers and other abatement technology, said Torres. While low sulfur fuel oil will be produced by either blending or desulfurization units, he added.
According to Torres, some trade flows will go to marine gasoil and eventually to LNG too. But LNG for bunkering will likely ramp up on the medium to long term, say in the next five-10 years, as more infrastructure is developed and ships get retrofitted or build with dual-fuel engines that use LNG, he said.
Methanol and other bio-fuels could also gain traction but their use will likely be limited, unless steps -- like tax incentives and carbon credits -- are taken to promote their use, said Torres.
Prior to the enforcement of emission control areas in Europe, BP had already started developing 0.1% sulfur fuels.
"At BP, we have done a lot of work to assess [IMO global sulfur cap] impact and we are ready to take action once ... the implementation date is confirmed," Torres said, adding that "BP is 2020 ready."
BP can exercise a number of options.
"We can work with our refineries to manage the crude selection, we will be looking at blending options; as well as other ways to meet the new sulfur specifications," he said.
SINGAPORE AND MASS FLOW METERS
Singapore, the world's top port for bunkering, is on track for the mandatory adoption of mass flow meters for marine fuel oil deliveries from January 1, 2017, with 50% of registered bunker vessels in the country now equipped with MFMs, the Maritime and Port Authority of Singapore announced at the 19th Singapore International Bunkering Conference and Exhibition held earlier this month.
MFM, which measures the transfer of bunker fuel between the supplier and buyer is expected to enhance productivity, bring more transparency and improve the accuracy in measurement processes by removing human intervention involved in conventional sounding methods.
The installation of MFMs could change the way the market operates in Singapore as cargo traders may decide to participate more in the delivered business, and the small bunker traders may look at changing their business model to focus more on providing logistics services, said Torres.
The implementation of MFMs could also mean that some bunker sales volumes might "leak" to other ports -- like Malaysia, said Torres.
But infrastructure bottlenecks, regular congestion and lack of an enforcement body such as the Maritime and Port Authority of Singapore mean that the volume shift will likely not be very significant, he said.
"Currently, we have 20 barges in Singapore. By January 1, we plan to have up to 10 MFM barges dedicated for own use but we will keep an option to scale up as needed," added Torres.
