Low-sulfur fuel availability in ocean shipping – and the higher prices expected to be paid for it – will not have the chaotic effect on the transportation and fuel markets as many are predicting, according to the leading lobbying group for the containership sector.
John Butler, president of the World Shipping Council (WSC), acknowledged that it has only been in the last several years that the maritime industry began paying close attention to the IMO 2020 bunker fuel regulation, even though it has been known about for a decade. But with the January 1, 2020 deadline less than a year away to meet the lower-sulfur fuel standards, there is more certainty in the market.
“A few years back there was a lot of speculation in the [pricing] models, so the delta was really wide in terms of predictions,” Butler told FreightWaves during the Association of American Port Authorities Spring Conference in Washington, D.C. this week.
“But what I’m seeing now is more encouraging, because we’re seeing more and more public announcements from bunker suppliers and oil majors on new low-sulfur fuel products. And while I’m not privy to them, our members are having a lot of conversations with their fuel suppliers to make sure fuel product is going to be there to meet the demand.”
The WSC’s 20 ocean carrier members represent approximately 90 percent of the global liner vessel capacity, handling approximately 160 million twenty foot-equivalent units (TEU) per year. The low-sulfur fuel needed to comply with the 0.5 percent global fuel sulfur cap is estimated to add tens of billions of dollars in added fuel costs to the containership sector alone.
Butler’s optimism about the IMO 2020 supply-demand situation mirrors that of Fatih Birol, executive director of the International Energy Agency. Birol testified before a Congressional committee in February that while there was initial panic about whether there would be knock-on effects for fuel used in the trucking and airline sectors in the United States, “refineries are saying now that they’re adjusting to the regulation” to produce lower sulfur fuels, he said. “There may be temporary price spikes for diesel and jet fuels, but I think the market will adjust, and I don’t think it will be long-lasting or very big.”
His outlook contrasts, however, with that of IHS Markit Vice Chairman Daniel Yergin, who predicted at the Journal of Commerce’s TPM 2019 conference earlier this month that the transition would not be a smooth, and that it would cause “significant” fuel price increases.
Butler also predicted that while there have been rumblings about the Trump administration looking to delay the IMO 2020 implementation date, it’s not very likely to happen.
“There is essentially no mechanism at the [International Maritime Administration] to stop it at this point. It’s happening.”