Poten: Relatively Smooth Sailing as IMO 2020 Enters into Force?

Two weeks into January 2020, it appears the shipping industry is coping better than expected following the entry into force of the highly dreaded sulphur cap, according to Poten Tanker Opinion.

One of the main concerns about the implementation of the IMO 2020, has been the availability of compliant fuels.

As the situation stands at the moment, it seems that oil companies, bunker providers and other market participants have used the ample time they had prior to January 1, 2020 to build up their inventories to be able to handle a surge in demand for compliant fuels.

As such, Poten believes that the availability of various compliant fuels would not be a major problem for tankers moving forward.

“We think that the availability of compliant fuels will increase over time. This will probably reduce the price differential between VLSFO and HSFO in the main bunkering hubs worldwide, although regional supply/demand discrepancies will remain,” Poten & Partners said.

There have been some reports of tight availability of very low sulphur fuel oil (VLSFO) in a few ports. Specifically, it has been reported that vessels were faced with long waiting times at the ports of Gibraltar and Singapore where ships were queuing to bunker compliant fuels.

When it comes to the quality of bunkers, there have been no majors issues reported as of yet, however, fuel quality problems may take a lot longer to surface. A great deal has to do with the owners being quite diligent in sampling/testing the fuels beforehand as a lesson learnt from the most recent fuel contamination cases, the utmost goal being to avoid large-scale problems.

However, Poten pointed to another issue that hasn’t been given that much attention, the availability of high sulphur fuel oil (HSFO).

Only vessels with scrubbers, currently representing an estimated 12% of the fleet can still use this fuel and as a result, demand for HSFO has fallen off a cliff around the world. For marine fuel suppliers, it may not make sense to dedicate storage tanks and bunker barges to HSFO in smaller bunker ports if there is no consistent demand.

“Shipping companies that own vessels with scrubbers will need to do more bunker planning and, in some case, may deviate their vessel from its optimal route in search of high sulphur bunkers,” Poten added.

It appears that owners that opted to install scrubbers on their vessels have started to collect their anticipated premiums.

On the benchmark TD3 (Arabian Gulf – China) route, the Time Charter Equivalent (TCE) for a VLCC with a scrubber is USD 24,000/day higher than for a vessel that burns VLSFO, Poten’s data shows.

For a Suezmax tanker trading from West Africa to Rotterdam, the difference is USD 14,000/day. On shorter haul voyages, which are more typical for Aframax tankers, the differences are much smaller. The TCE premium for an Aframax with a scrubber trading in the Caribbean is “only” USD 7,000/day.

As explained, when vessels trade a majority (or all) of their time in ECA zones, (requiring 0.1% sulphur fuels), the scrubber premium disappears altogether.

“If long-term availability of HSFO is maintained and the economics continue to make sense, we expect more scrubber installations on larger vessels employed on long-haul trades. For larger product tankers (LR1’s/LR2’s) on the long-haul AG-East trades, scrubbers also appear to be a good investment.

“Scrubbers are not without problems and challenges, but unless there are significant regulatory changes, we expect scrubbers are here to stay. Over time, they will get better, become more reliable and cheaper to operate.”