How secure is the position of heavy fuel oil in the bunkering market? Its an important question because whilst other uses for fuel oil are under threat of substitution, its the one area that seems to be sustainably growing. Yet with high oil prices and refiners aiming to reduce fuel oil production, can it maintain its position? Its not just prices either that are a threat. Emission Control Areas will force some ships, some of the time to use alternatives:
The year 2015 is an important year for the shipping industry. At that time stricter requirements on fuel oil sulphur content will enter into force in the Emission Control Areas (ECAs). From 2015 the maximum allowable sulphur content in fuel oils is 0.10 % in the ECAs. The confirmed ECAs are Baltic Sea, North Sea and the North American Coast together with the US Caribbean. From 2020 a global requirement of maximum 0.50 % sulphur (outside ECAs) will apply.
So how will shippers cope?
There are basically three main options for future compliance with the above:
- Operation on low sulphur fuel oil/marine gas oil (MGO).
- Operation on heavy fuel oil (HFO) with an exhaust gas scrubber.
- Operation on liquefied natural gas (LNG) or alternative fuels.
How realistic is the LNG option? Well judging by some of the recent news flow, it could be a big part of the solution.
A couple of months back, Linde made an announcement:
Marquard & Bahls through its subsidiary Bomin, a leading provider of marine fuels, and technology company The Linde Group today announced that they will establish a joint venture company in order to build an infrastructure for liquefied natural gas (LNG) in the maritime sector in Europe.
Europe of course being a major Emission Control Area
Next in line was Shell:
Today, Shell, announced it has signed a contract for the charter of two new build LNG (Liquefied Natural Gas) powered tank barges. These 110 m long barges will operate on the Rhine and will be on charter to Shell from 2013
Note its just two barges. However, Shell has simply found a little niche, where the environmental benefits are more important. It is niches like this that sometimes develop into bigger segments
Unsurprisingly, the world's largest gas producer is also getting in on the game:
Today the Memorandum of Understanding was signed by Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee and Alexander Vinokurov, President of Summa Group. The document fixes the intentions of the parties to arrange cooperation for LNG utilization as a bunker fuel for marine vessels, including those owned and operated by Summa Group
With Gazprom and Shell aboard, the LNG band wagon could get a lot of momentum
I quoted from a LLoyds report at the beginning. This report surveyed both Port & Ship owners on their attitude to LNG as a fuel. Both are dependent on the attitude of each other, as an LNG market needs both infrastructure and customers. Both seem to be open to the idea:
The result from the deep-sea shipowners’ survey shows that LNG-fuelled ships are a viable option in the long-term particularly for containerships and cruise ships. However, there is still some doubt among tanker owners with many saying they “don’t know” what mitigating technologies they will use in the future. Solutions will be ship type and trade route specific, i.e. LNG is a solution not the only solution.
When you bear in mind that the global bunker trade is about the same size as the current global LNG market, so even if it is a solution, the impact on demand could be significant.