Uncertainty over whether refineries are doing enough to plan for marine fuel switch pushes up premium for low-sulfur product.
As the world’s merchant ships switch to a low-sulfur fuel standard next year, ocean carriers are looking to assess how much the newer fuel will cost. As FreightWaves’ oil market expert John Kingston reports, the early indication based on trading in the futures markets shows low-sulfur fuel prices may be over 50 percent higher than the now standard high-sulfur fuel used in the shipping industry.
One of the biggest issues driving the cost is the perceived inaction on the part of the global refining industry to install more equipment to make the low-sulfur fuel. In a Stifel-hosted conference call on the upcoming switch to low-sulfur marine fuel, Baker & O’Brien refinery analyst Charles Kemp said that many refineries are waiting to see if the regulations actually happen by the expected 2020 deadline before deciding to invest in new equipment, called a coker, that can turn high-sulfur crude oil to low-sulfur fuels. Installing a coker can cost $1 billion and take several years to build. As a result, the extra coking capacity needed to supply more 2020-compliant fuel “would not be ready for the initial implementation of the regulations.” As a result, the supply of low-sulfur shipping fuel “will be limited and very expensive.”
That’s not to say all regions of the world are short of coker capacity. The U.S. has approximately 2.8 million barrels per day of coking capacity already, chiefly along the U.S. Gulf Coast. There, many refiners depend on high-sulfur crude oil from Mexico and Venezuela, leading to more investment in coking capacity. Marathon Petroleum (NYSE: MPC) plans to complete a coker expansion project at its Garyville, Louisiana by next year. The new coker, along with another sulfur removal project along at a Texas refinery, will allow Marathon to convert high-sulfur fuel into a low-sulfur distillate capable of being used as ship fuel. .
The real deficit in coking capacity will likely be in Europe, Baker & O’Brien’s Kemp said. The continent’s refineries lack the coking capacity more widely available in the U.S. Even though the Amsterdam-Rotterdam-Antwerp region is one of the world’s busiest ports for buying marine fuel, very few of the refiners there have gone out on a limb to install additional coking capacity. The notable exception being ExxonMobil (NYSE: XOM), which completed a $1 billion project to add more coking capacity to its Antwerp refinery.
Maersk plans to develop new Thai port
APM Terminals partners with local firms for greenfield project. (Vessel Finder)
APL containership off Vietnam struck by fire
No crew has been injured in fire that has blazed through the weekend. (Splash 247)
Product tanker CEO sees bull run ahead
Concordia Maritime chief says tankers will benefit from IMO 2020 rule. (Shipping Watch)
Chinese New Year slowdown starting up
Ocean carriers notch up to 15 blank sailings for Lunar New Year. (Lloyd’s List)
Chinese customs delays keep vessels idle
Customer inspections delayed by New Year slows iron and coal imports. (Safety4Sea)
Panalpina shareholder rejects DSV offer
The $4.1 billion offer from Denmark’s DSV (Nasdaq OMX: DSV) for Swiss rival Panalpina (SWX: PWTN) faces its first major hurdle in the form of the latter’s largest shareholder. The Ernst Goehner Foundation, which owns 46 percent of Panalpina, said it does not support the $172-per-share offer for the company. Instead, it supports “Panalpina’s board of directors in pursuing an independent growth strategy that includes M&A.” The foundation figured to be the roadblock, said Stifel analyst Bruce Chan, noting the lack of yield on DSV shares.