Heavy fuel oil

The clock is ticking for international shipping companies, cruise lines and others to determine how they will meet the much more stringent standard for bunker fuel sulfur content that will kick in just over two years from now. While many shipowners will likely meet the International Marine Organization’s 0.5% sulfur cap in January 2020 by shifting to low-sulfur marine distillate or a heavy fuel oil/distillate blend, a smaller number are investing in ships fueled by LNG. LNG easily complies with the sulfur cap, and while it costs more than high-sulfur HFO — the bunker that currently dominates world shipping ­­— it is less expensive than the low-sulfur distillate and HFO/distillate blends that will be needed to meet the new standard. But there are catches with LNG, including the need to dedicate more onboard space for fuel tanks and (even more importantly) the lack of LNG fueling infrastructure in a number of ports. Today, we discuss the short and long-term outlook for LNG as a marine fuel.

Shipping companies now know that within three years all vessels involved in international trade will be required to use fuel with a sulfur content of 0.5% or less—an aggressive standard, considering that in most of the world today, ships are currently allowed to use heavy fuel oil (HFO) bunker fuel with up to 3.5% sulfur. This is a big deal. Ships now consume about half of the world’s residual-based heavy fuel oil, but starting in January 2020 they can’t—at least in HFO’s current form. How will the global fuels market react to a change that would theoretically eliminate roughly half the demand for residual fuels? How will ship owners comply with the rule? What are their options? Today we discuss the much-lower cap on sulfur in bunker fuels approved by the International Marine Organization, and what it means for shippers and refineries.