(Montel) Looming restrictions on shipping fuel sulphur content could see some disruptions to vessel availability and higher freight prices early next year, shipping analysts said on Thursday.
New International Maritime Organisation (IMO) rules come into force in January and will see the fuel oil sulphur limit slashed to 0.5% mass/mass from 3.5%.
“The fleet is mostly ready, as most will not fit scrubbers,” said Burak Cetinok, head of research at Arrow Shipbroking Group, noting many vessels would simply run on fuel oil meeting the new specifications.
Scrubbers – more officially known as “exhaust gas cleaning systems” – must be retrofitted to vessels if they are to continue using higher-sulphur fuel.
Another option is to switch to LNG, although existing oil-based engines cannot shift directly to the fuel, so shipping companies need to procure new 100% or partially LNG-fuelled ships.
“I predict some disruption in the first quarter of next year,” Cetinok said, citing possible logistical problems for shippers in obtaining suitable fuel which could push fuel, and therefore freight, costs higher.
“But there is enough refining capacity globally to produce sufficient fuel,” he added.
One analyst, with a large shipbroker, estimated just 5-10% of the global dry bulk fleet had been retrofitted with scrubbers, while just a handful of 100% LNG-fuelled capesize vessels were currently scheduled to be built.
Nevertheless, by 2030 global LNG demand to fuel ships could jump up to 40bcm (446 TWh) per year, one analyst said on Wednesday.
Severe tightness
Meanwhile, demand-side “wildcards” could exacerbate any near-term problems faced by the shipping industry over the transition period.
“There is a fair chance of severe tightness, especially in January and perhaps March,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo.
“Q1 and Q2 is the low season for commodity trade, thus the chance of a very tight freight balance is naturally lower,” he said, adding, however, Chinese demand for iron ore could “surprise to the upside”, and if winter proved to be particularly cold, it could trigger unseasonably high thermal coal demand.
“And, of course, imbalances in bunker fuel markets could end in unforeseen imbalances in freight,” he said.
Reporting by:
Laurence Walker
laurence@montelnews.com
12:50, Thursday, 17 October 2019