Sulphur cap could add $60bn to annual global bunker bills

According to a Wood Mackenzie study, global bunker fuel costs could rise by up to $60bn annually from 2020, in a full compliance scenario, when the International Maritime Organization’s (IMO) 0.5% sulphur cap for bunker fuels kicks in.

A combination of higher crude prices and tight availability of marine gas oil (MGO) could take the price of MGO up to almost four times that of fuel oil in 2016, the report claimed.

Sushant Gupta, research director for Asia refining at Wood Mackenzie, said, “Installing scrubbers may be an economically attractive option. Although there is an initial investment, shippers can expect a high rate of return of between 20% and 50% depending on investment cost, MGO-fuel oil spread and ships’ fuel consumption.

“Despite attractive returns, penetration rate for scrubbers could be limited by access to finance, scrubber manufacturing capacity, dry-dock space and technological uncertainties. The shipping industry is traditionally slow to move, but in this case, early adopters may hugely benefit.

“Switching to MGO is a more costly solution. In full compliance, we expect shippers to try to pass the cost to consumers and freight rates from the Middle East to Singapore could increase by up to US$1 a barrel.”

Wood Mackenzie also said it expects a shift in bunkering locations based on compliant fuels availability. Singapore could potentially lose some of its market share for bunker fuels to China as shipowners look for alternative locations with a surplus of compliant fuels, the report suggested.

“China, with ample MGO supply, is well positioned to attract [shipowners] looking for MGO. Singapore will also need to repurpose some storage tanks and other infrastructure to prepare for a shift from fuel oil to gasoil bunkering,” the report claimed.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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