A report from Nordic corporate bank SEB has asserted that the world’s refineries should be able to ‘easily’ meet the need for 0.5% marine fuel in 2020.
That outcome, however, is highly dependent on the price of 0.5% fuel relative to the prices for other fuel types, according to SEB’s IMO 2020 Report #2.
“The world’s refineries should easily be able to supply enough quality 0.5% fuel given the quantities of low-sulphur crudes available worldwide today,” the report, authored by SEB Norway’s chief commodities analyst Bjarne Schieldrop, said.
Global refineries “will only supply [0.5% fuel] if the price is sufficiently high in relative terms,” the report claimed.
The magic number is roughly US$90 per tonne less than the price of marine gas oil (MGO) with 0.1% sulphur content – at least in the immediate aftermath of the 1 January 2020 start date for IMO’s global cap on sulphur in fuels.
That price relationship with 0.1% fuel will need to hold for the first three to four years after IMO’s global cap on sulphur in marine fuel kicks in, the report said.
Thereafter, the price of 0.5% fuel will need to remain some US$90 per tonne above that of the heavy fuel oil (HFO) many vessels currently use – and that those vessels with scrubbers installed will be allowed to continue to use – containing 3.5% sulphur content.
A significant surplus of HFO 3.5% is factored in between 2020-2022, the report said.
“We forecast production of MFO 0.5% fuel oil will cause the gasoil market to tighten as middle distillates in the form of vacuum gas oil (VGO) [blends] are retained within MFO 0.5%,” it said.
“As a result, we still estimate the gasoil to HFO 3.5% price spread will widen to more than US$450/tonne in 2020 and the MFO 0.5% to HFO 3.5% price spread to increase to over US$360/tonnr, before slowly but steadily decreasing once again as the market adapts.”