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Recent conferences have heard from speakers that an additional 15-20 million metric tonnes (mt) of middle distillate will need to be imported into Europe annually to meet the requirements of 0.1% sulphur in fuels from 2015. This will obviously create upward pressure on the differential between Marine Gas Oil (MGO) and Heavy Fuel Oil (HFO). It is however only the first step in the swelling of demand for distillates for marine use. In 2020 a global cap of 0.5% comes into force and whilst this has the potential to be deferred until 2025 within the International Maritime Organisations (IMO) legislation, it is now confirmed as coming into force in European Commission (EC) Territories, outside Emissions Control Areas (ECA) where the 0.1% limit will apply, from 2020 regardless of any delay at IMO. As Europe is currently a net importer of middle distillates, from which both MGO and road diesel are derived, sound reason indicates that pricing will rise in 2015 and then again in 2020. Equally a fall in demand for HFO is likely to depress its price relative to MGO.
Norwegian Cruise Lines (NCL) announced this week that its vessel “Pride of America” is to be fitted with exhaust gas scrubbers this year, which will enable it to comply with the 0.1% limit whilst continuing to consume HFO. NCL itself reports that the capital investment for the installation is calculated to have been paid back within 2 years. NCL are not alone in seeing the attraction of continuing to consume HFO, indeed at the recent SEAaT conference “Fuelling the Future” the UK Chamber of Shipping explicitly stated that its members see scrubbing as playing a “significant” role in compliance. We at Oceanox would see these 2 “steps” up in MGO demand bringing clarity and certainty to the industry. An increase in the number of vessels fitting scrubbers from 2015 will mitigate the upsurge in MGO imports and position the industry for the second “step” in 2020.