Gibson: Tankers Alarmed by Demand Shift in Fuel Oil Trade

A significant demand shift across the barrel is expected in less than two years’ time as the industry prepares for IMO’s 0.5% sulphur cap in 2020.

While scrubbers will only play a minor role by the implementation date, the demand shift will also affect the fuel oil trade and paint an alarming picture for tankers with large volumes of fuel oil demand set to be stripped from the market, according to Gibson Shipbrokers.

Yet, very low sulphur fuel oil (VLSFO) will be carried on dirty tankers, reducing the demand shift to clean from dirty products to 1 million b/d, a report from International Energy Agency (IEA) showed.

Furthermore, the IEA estimate that from 2020 to 2023, VLSFO will claw back market share from marine gasoil (MGO), with eventual VLSFO demand of around 2 million b/d, complimented by 1 million b/d of ‘scrubbed’ high sulphur fuel oil (HSFO) demand. In effect, this returns the clean/dirty bunker demand split to where it was prior to 2020, but with VLSFO having taken share from HSFO.

IEA estimated that spare capacity in the power generation sector could absorb nearly 0.5 million b/d of HSFO demand, predominantly to destinations in the Middle East and Africa which would support longer voyages. Furthermore, by considering HSFO and VLSFO as dirty products, the total market share lost to MGO is just under 1 million b/d, which is likely to be reduced to 0.5 million b/d when new sources of demand are considered.

Over time refinery upgrades will gradually come online, suggesting more VLSFO will be produced at the expense of HSFO.

Assuming compatibility issues are overcome by this stage, higher availability of VLSFO should support a demand shift from MGO to VLSFO. In time this would see the volume of dirty bunker fuel cargoes being transported on tankers move close to pre-2020 levels.

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