Cockett Group’s CEO Cem Saral says the task of meeting the IMO 2020 regulation has been as tough as ‘crossing the Rubicon', but while the switch to 0.50% sulphur fuels may have come later in 2019 than had been expected, he notes that ‘as an industry we have done well’ in making the transition.
Giving the keynote speech at the Middle East Bunkering Convention, which opened today in Dubai, Cem Saral said that while the shift to IMO 2020-compliant fuels had been expected to kick in last October/November, in the event the change came later, impacting the market in December.
In terms of product split, he noted that Cockett had seen very low sulphur fuel oil (VLSFO) account for 57.2% of volumes in December, and marine gasoil, 19.7%. Moving on to January, and VLSFO volumes have ramped up significantly to 70% of the total, with MGO accounting for 20.8%.
Assessing the impact of IMO 2020 in the first weeks of 2020, Saral said VLSFO specifications are showing variations across all regions, with the majority of blends being seen as ‘too close’ to the 0.50% sulphur limit.
Understanding the behaviour of the new VLSFOs entering the market is proving to be a ‘steep learning curve,’ said Saral and he also noted that scrubber equipped tonnage continues to grow at pace. The number of scrubber-equipped ships is expected to climb from 1,800 in 2018 to 3,800 in 2020, and Saral reminded delegates that some ‘40% of scrubbers orders are pending retrofit or waiting to go into the fleet.’ Demand for HSFO is expected to double between January-December 2020 and the market can expect to see a significant bunker premium on this product.
The shipping and bunker markets can expect to take some comfort from marine fuel prices, as the severe volatility seen at the start of 2020 calms down. However, Saral cautioned, market stability in pricing may not really play out until mid-year.
The bunker market will increasingly feel liquidity pressures, he said, and taking close account of counterparty financial risk will be essential. Claims management will also be an issue with much of the resolution process applying to VLSFO supply.
While IMO 2020 is a key focus of MEBC, it was clear from the panellists’ presentations and discussions along the sidelines of the conference today that the challenge facing shipping in its journey to decarbonisation, in order to meet ambitions of the IMO’s GHG reduction strategy, is high on many people’s agenda. This was certainly a key takeaway from Saral’s address. ‘What we do and what we don’t do in the next 10 years will define us,’ he told delegates.
While conventional fuels have offered the solution to meeting IMO 2020, the marine fuels industry and shipping are going to have to embrace significantly more innovation in operations and technology to meet the major challenge of 2040 and 2050 targets.
‘The marine fuels business will not be able to find the solution on its own,’ cautioned Saral, and the industry will need to revisit and change the way it goes about it business if it is to survive in the coming zero carbon era.
‘The marine fuels industry will have to adjust its ways of trading,’ he said. Companies will have to put sound business strategies in place and strong corporate governance, and access to capital and strong cash discipline will also be key survival strategies, as well as effective enterprise risk management.