The UK Government Parliamentary Committee’s message to the EU not to exceed IMO requirements (Marine Link 9 March 2012 - Marpol Vl Enough UK MP's Say) certainly seems a pragmatic and sensible approach.
The shipping industry has lobbied hard over the years to keep shipping regulation global in line with its international remit and nature and one can understand the logic behind its reaction to the EU’s proposals to target specific types of ships within EU waters, but outside Emissions Control Areas (ECA). It does seem though that the 2015 reduction to 0.1% sulphur in ECA is likely to proceed, this being the case I was considering the possible implications in respect of bunker fuel markets. Most ship operators that we talk to see the compliance options as
a) Burning Gasoil
b) Installing scrubbing equipment
c) Converting to LNG
I thought it worth some thought in terms of the possible impacts on demand for fuel oil, gasoil and LNG and what this might do to the direction of prices. For the purposes of this I have assumed that fleets remain roughly the same size and overall demand for energy remains the same, only the source varies after 2015.
Fuel Oil – The only way fuel oil demand can remain the same after 2015 is every ship operating within and ECA fits scrubbing equipment. This is not feasible within the timescale and also probably not appropriate for all vessels. Therefore logic would dictate that fuel oil demand will fall, how far will depend upon how many ships install scrubbers.
Gasoil – Equally, demand for Gasoil is likely to rise given that at least some ships will chose or be forced to comply by consuming it, again, how far depends on the up take of scrubbers and conversions to LNG.
LNG – Pushing to one side the infrastructure challenges involved in a large scale shift to LNG, the likelihood is that some ships will chose to comply via this option. In the event that they do, it will increase demand for LNG bunkers, however they are delivered.
I make no pretence of being able to predict energy markets, but it does seem likely that demand for gasoil and LNG will increase after 2015 and demand for fuel oil will fall. The financial implications of this can only really be quantified with an accurate assessment of supply.
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