The IMO’s legislation on ship emissions could be about to shake-up the global bunker market, with North America set to benefit, says Wood Mackenzie.
“In light of new marine fuel regulations in 2020, North America has the opportunity to take a much bigger role in the future global bunker market given its capabilities to be a major supplier of ultralow sulfur fuel oil (ULSFO) components and gas oil,” says Alan Gelder, vice president, refining, chemicals & oil markets, EMEARC Research for Wood Mackenzie.
Gelder, who was speaking at the recent American Fuel & Petrochemical Manufacturers (AFPM) annual meeting in San Antonio, Texas explained that the global total demand for fuel oil and gasoil bunkers has changed little since 2010.
However, Asia Pacific’s market share of the global bunker market has continued to grow, now representing almost half of all bunker volumes sold.
“This is a reflection of the current global bunker fuel market being dominated by high sulphur fuel oil (HSFO), which is more costly in the US than in Europe, as the US Gulf Coast has more sophisticated deep conversion refining capacity that can process heavy residue feedstocks.”
However, Gelder said that North America has a high global share of the global gasoil bunker market, due to it being an Emissions Control Area and a low cost source of middle distillates.
“Any switch in bunker fuel towards distillate could hence increase North America’s bunker market, as it is one of the lowest cost providers of such fuel,” said Gelder.
“The forthcoming IMO legislation on ship emissions under MARPOL Annex VI could provide such an opportunity.”
According to a separate study by Wood Mackenzie, ULSFO could emerge as the lowest cost compliance option, but sufficient volumes of ULSFO are not expected to be available at current fuel oil price levels, with volumes limited to less than 1m barrels per day (bpd) in 2020.
Nevertheless, Wood Mackenzie says there is considerable uncertainty regarding availability and this is likely to evolve during the initial years of implementation.
“Considering these factors, the market outlook is uncertain, but there will be a shift away from HSFO to gasoil by the shipping sector,” noted Gelder.
“North American refiners have the opportunity to take a larger share of the global bunker market through their advantaged supply of ULSFO components and gas oil.
“This will require development of the necessary port and bunkering infrastructure, with the expectation that North America can punch above its weight in global bunker supplies post 2019 if it focuses on capturing the forthcoming opportunity.
“There is hence a risk that this fuel specification change could be disruptive, but the anticipated market reaction could benefit US Gulf refiners that have deep conversion/distillate oriented configurations.”
