Recent media reports have cited the current low oil price as an indication that Emissions Control Area (ECA) compliance in Europe has been “virtually zero”. This is, of course, absolute nonsense.
The cost of compliant Marine Gas Oil (MGO) is certainly much lower now than it was 6 months ago, current indications in Rotterdam put MGO at US$570 per ton. This is round about the price that was being paid for Heavy Fuel Oil (HFO) 6 months ago, however HFO has fallen also, to US$324 per ton in Rotterdam.
The finite cost of the fuel has never been the cost of compliance, it is actually the differential cost of the compliant fuel, and MGO costs US$246 per ton more than HFO!
Ships fitted with sea water scrubbers can consume HFO, thus their fuel costs are US$246 per ton lower than a ship which has not been modified.
As someone that has been involved in oil markets for over twenty years it has been a constant bug bear for me that often folk look at the finite numbers and fail to realise that it is only the spread that matters. The oil price will always vary, what will not is the structural differential between a distilled MGO and the residual HFO.
In the procurement of oil, the majority of the cost is in the commodity, which traditionally cannot be addressed, thus savings must be achieved through squeezing transport and supplier margins. Therefore even the largest ship owners with huge leverage and resources can achieve only marginal savings against smaller operators. The only way to achieve significant advantage is to adjust the commodity, for example by being able to consume a structurally lower cost product.
As they say in America, “It doesn’t matter who won, did you cover the spread?”
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