Higher fuel costs loom

Nov 02 2014

With the IMO’s sulphur emissions regulations only two months away, shipowners will soon be faced with the challenge of compliance and the obvious associated costs.

The use of exhaust gas cleaning systems (EGCS) will continue to be allowed, meaning vessels fitted with scrubbers can continue to burn high sulphur fuels, explained Gibson Research in a recent report.

For the most part, the reality of this change in regulations is that heavy fuel will have to be replaced with cleaner fuels, such as marine diesel and marine gas oil (MGO) with 0.1% sulphur content, which are currently considerably more expensive.

Taking Rotterdam prices as an example, Gibson’s records show that the differential between high sulphur fuel oil (HSFO) and MGO has fluctuated between $253 per tonne and $337 per tonne since 2012, with the current difference (24th October) at $260 per tonne.

Apart from increased bunker costs, the change of fuel may require some engine modifications, due to changes in viscosity. In addition, operations will become more complicated, due to the need to store different grades of bunkers on board, which will mean the sub-division of tanks and there is the likelihood that vessels will need to bunker more frequently.

Bunker suppliers will have to source the large quantities required and the relatively small size of the marine market, compared to the land market, will mean that suppliers will have to pay to get their share of the refiners output of compliant fuel.

ExxonMobil Marine Fuels now produces a compliant fuel known as HDME 50, which has similar properties to HFO but importantly, complies with the 0.1% sulphur limits. While this fuel is reportedly cheaper than MGO, it is currently only available in the Rotterdam area.

There is therefore a big question mark about where most of these new bunker supplies will come from. Most likely, in case of a deficit, it will be sourced from Russia, the Middle East, India, South Korea and the US. On the other hand, Europe will have a major surplus of fuel oil, which will be in demand in Asia. Combined, these developments will support tanker demand.

Another alternative to marine diesel and scrubbers is to convert to LNG as a fuel source. However, this will not be an option for many as it will require considerable investment, which is also an issue when going down the scrubber route, Gibson said.

Changes in sulphur levels will no doubt impact in other areas as well. Recent commentary for example has dwelt on how effective policing will be and whether guarantees for timecharter speed and consumption will need to be revisited.

In practice (obviously depending on bunker prices at the time) it is estimated that an Aframax sailing on a cross North Sea trip will incur an additional cost in excess of $100,000 on the basis of a round voyage lasting nine days, Gibson calculated. 

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