The International Maritime Organisation has set a preliminary 2020 target for shipping companies to cap their sulphur emissions at 0.5% from the current 3.5% global cap. The European Union is looking to impose an even stricter 0.1% cap on sulphur exhaust in areas of the North and Baltic Seas.
Hitting that target will likely result in greater demand for marine gasoil (MGO).
But WoodMac says MGO prices could be four times the current price of heavy fuel oil due to the increased demand from the shipping sector.
“Switching to MGO is a more costly solution,” WoodMac says in the study. Freight rates on a tankers from the Middle East to Singapore could increase by up to $1 a barrel.
As for who will most benefit from the widespread switch to MGO, the newer, export oriented refineries of China and India, which are designed to yield more MGO, look to be in the pole position.
“Singapore could potentially lose some of its market share for bunker fuels to China as shippers look for alternative locations with a surplus of compliant fuels,” WoodMac said. “Singapore will also need to repurpose some storage tanks and other infrastructure to prepare for a shift from fuel oil to gasoil bunkering.”
Scrubber use uncertain
Shipowners also have the option of installing scrubber technology in order to lower sulphur emissions. WoodMac says scrubbers could more than pay for themselves if MGO prices were to soar.
But it cautions that the “penetration rate for scrubbers could be limited by access to finance, scrubber manufacturing capacity, dry-dock space and technological uncertainties.”