An article in Lloyds List of 2 April (Shipping to compete for diesel fuel) raised some very interesting points regarding the demand for and availability of low sulphur marine distillate fuels, and the bunker industries lack of appetite for significant increases in prices which extend credit exposure to vessel operators.
Much has been said of the increase in demand for middle distillates over the next ten to twenty years, emerging economies and emissions regulations all contributing. The Lloyds article goes on to discuss the potential for a convergence of specifications for land and marine distillates. The main differentiator at the moment is of course flash point, but there is some discussion and momentum behind making adjustments. Whilst this may well reduce complexity at the refinery, simplifying the number of specifications, there is also the spectre of what it might do to prices, both in ports and on forecourts.
Also discussed in the article was the contention by Mr Soren Meyer (CEO of OW Bunkers) that “Uncertainty being promoted by some shipowners is leading to a false hope”. The uncertainty is, he asserted, making it very difficult for refineries to plan, they have no idea what fuel to produce and in what quantities.
Mr Meyer goes on to mention the impact of an increase in demand for distillates on the credit exposure of the bunker industry. The bunker industry is one of the shipping industry’s biggest creditors, supplying 275m tonnes of fuel a year with an average 30 days’ credit based on fuel costing $750 a tonne generates an average of about $206bn credit. According to Mr Meyer the suppliers actually only get 5 days credit from refineries. Extending this exposure with the higher cost of distillates in emissions control areas can only exacerbate the issue.
We believe that a significant installed base of sea water scrubbing equipment will protect high sulphur fuel oil dispositions and reduce the pressure on the bunker and refining industries.
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