A large section of the shipping industry will take pre-emptive steps to ensure compliance with the International Maritime Organization 2020 sulfur cap on marine fuels, ending purchases of high sulfur fuel oil in October and switching to shorter routes to reduce the risk of being caught out, market sources said.
While some are queuing up for getting scrubbers installed, others are preparing for using low sulfur fuel oil and marine gasoil without delay.
Oil conglomerate Kuwait's KPC and clean Medium Range tankers major Ardmore Shipping will be using low sulfur fuels in their ships from next month, said sources involved in the task. Ardmore will be using LSFO in the tanks of all their ships, one such source said. The company has 19 MR tankers.
"We will stop procuring high sulfur fuel oil by end-October," another global shipping operator said, highlighting the importance of working with cleaner fuels early rather than scramble at the 11th hour.
Most shipping companies are undertaking this task well in advance to avoid glitches at the last moment.
"Some shipowners and operators are already switching, while the majority will have switched from October," one research expert at a ship broker said. "Someare already cleaning tanks and using the new fuels," he added.
The shipping industry is making sure it has time to run different fuels given the ushering in of a new era.
"It is natural that shipowners need to experience these new products -- such as VLSFO, which is an unproven product -- that are expected to make up for lion's share of the compliant fuels from 2020," said Peter Sand, chief shipping analyst of BIMCO, a key international shipping association.
Tankers could face a shortage of compliant fuels from the very beginning at smaller bunkering ports, but the main hubs should be safe to go to, Sand said, with Singapore, Fujairah and Rotterdam making up the big three.
The comments come following a shift in sentiment over compliance to the new sulfur fuel rule.
Compliance with the IMO's lower global sulfur limit for marine fuels from January 1 could reach as high as 95% in the first few months, well above some industry estimates that pointed to around 65%-70% a year ago, it was revealed by industry participants at the S&P Global Platts Asia Pacific Petroleum Conferenceearlier this month.
While restrictions on sulfur emissions in shipping are not new -- emission control areas have long existed in certain regions -- the transition to IMO 2020is daunting, with the majority of bunker demand having to switch to 0.5% sulfur from 3.5%.
Meanwhile, industry sources said they are planning to take shorter maritime routes so as to reduce risk around volatile bunker prices and to guard against being left with unwanted high sulfur fuel oil in their tanks.
Bunker prices have already jumped around in the past week due to the large-scale disruption at Saudi Arabia's oil processing facilities that could lead to a risk premium in the months ahead.
There are others who are hedging their bets and installing scrubbers, or exhaust cleaning equipment, on a part of their fleet.
The hedge of having scrubbers on some ships and not on others emanates from the uncertainty over and the volatility in the current and expected spread between high and low sulfur fuels.
On Friday, the 0.5% marine bunker fuel on a delivered basis in Singapore was commanding a $38/mt premium over the 380 CST bunkers with 3.5% sulfur, sharplydown from $128/mt a month ago, according to the latest data from Platts.
