The introduction of the 0.50% global sulphur cap will increase the need for additional IMO 2020-compliant fuel and blend component tank storage, says René Loozen, Consultancy Director at Insights Global.
Speaking at last month’s ARACON bunker conference in Rotterdam, Loozen provided an overview of current tank capacity at global bunker hubs. ARA and Houston are the largest in terms of tank capacity, followed by Singapore and Fujairah, and all these hubs have demonstrated a similar growth trajectory, albeit starting at different moments in time, said Loozen.
Global tank capacity (i.e. all those terminals that rent out capacity to third parties) is currently around I billion cubic metres (cbm), with these four bunker hubs together accounting for a market share of just under 10%. Looking at the total capacity of these hubs, ARA has a 40% share and has seen growth from around 22 million cbm in 2005 to 38 million cbm in 2019.
Houston follows next, with a 34% share and with capacity expansion from just under 20 million cbm in 2005 to around 32 million cbm this year. Singapore has a 16% share and its capacity has increased from around 5 million cbm 14 years ago to its current level of 15 million cbm. The last of the ‘big four’, Fujairah, has a 10% share and storage capacity here has grown from around 2 million cbm in 2005 to some 10 million cbm.
Looking at the factors that impact or generate activity in tank storage markets, Loozen noted that moderate oil price levels as well as price volatility moving upwards were positive indicators for the tank storage business, whereas low stock levels and an oil price forward curve in backwardation were not so good. Arbitrage activity leading to increased trade flows also has a positive influence on the storage sector.
Picking up on the issue of trade flows, Loozen also highlighted that tank capacity and these flows have tracked each other for many years. In 2009, for example, global tank capacity was around 700 million cbm while global tank demand was 900 million cbm. A 150-200 million cbm spread between the two has remained relatively constant over the years with global tank capacity at 1,000 million cbm in 2018 and tank capacity demand at 1,200 million cbm.
In his assessment of how refineries have responded to meeting demand for IMO 2020-compliant fuels, Loozen highlighted the challenge for refiners in trying to gauge the likely uptake of different fuel options. In relation to the potential demand for 0.50% sulphur fuels, he noted that industry consultants’ opinions varied considerably, with estimates of 0.50% sulphur fuel uptake ranging from 25%-50% of total bunker fuel demand.
In the ARA region, Loozen highlighted that refiners have not invested in desulphurisation to meet IMO 2020, but have opted to install capacity to convert their residual fuel into gasoil and diesel.
The introduction of the new sulphur cap would lead to different dynamics in the bunker fuel and tank storage sectors, he said. There will be changing trade flows in bunker fuels and an increase in demand for storage, and the market could take 1-3 years to fully absorb and adjust to the impact of IMO 2020.
Loozen told delegates that the marine fuels market in the European Union is expected to demonstrate growth in the coming years. In 2020, it is estimated that this market will total 46.7 million tonnes, with 7.9 million tonnes contributed by HSFO (a massive decline from the 33.5 million tonnes seen in 2018). Next year, LSFO will account for 20.1 million tonnes of the total. Looking out to 2025, the picture changes slightly, with demand for LSFO increasing to 24.3 million tonnes, and dropping back for distillates to 11.7 million tonnes. In 2025, however, HSFO demand shows a moderate bounce back to 11.7 million tonnes, so putting it on a par with distillates. Marine LNG uptake remains very modest, with EU demand estimated to be around 1 million tonnes in 2025.
As demand for low sulphur bunker fuel grows in Europe, Loozen suggested that an increase in the number offuel grades and a requirement for more blend components will lead to a market requirement for more terminal storage capacity.
More information about Insights Global can be found here.