Scorpio Tankers has identified the forthcoming entry into force of IMO’s 2020 sulphur cap as a unique opportunity for product tanker owners.
In the foreword to the company’s 2018 annual report, chairman and chief executive Emanuele A Lauro noted that IMO 2020 will see a significant portion of the merchant fleet switching to compliant fuel; the only fuel available to meet this demand “in any meaningful way” is distillate; and the global delivery system for this is dependent on product tankers.
Speaking on Scorpio’s Q1 earnings call on 2 May, Mr Lauro said “This one-time expansion in the size of the market […] is unique in recent memory.
“It comes with enduring positive secondary effects such as expanded physical arbitrage global distillate imbalances and improved refinery margins.”
The company’s Q1 numbers show it has started to feel “the much-anticipated acceleration of product tanker rates and markets,” Mr Lauro added.
Commercial director Lars Dencker Nielsen noted that in Q1 freight rates in Scorpio’s core product segments of LR2, LR1, MR and Handymax sizes were at levels not seen since 2015.
While Q2 is slower in part due to frontloading of refinery turnarounds, Scorpio believes this is largely behind us. Mr Dencker Nielsen added that he expects refiners to maximise production of middle distillates in the second half of the year, and that many will be preparing to run flat out in advance of IMO’s 2020 sulphur regulations coming into force.
Enhanced drydocking and scrubber installation will impact tonnage availability in the second half of the year, introducing the possibility of market tightness in Q3, he noted.
New routes and physical arbitrages are coming online, increasing tonne-mile utilisation particularly in the LR2 segment, Mr Dencker Nielsen noted. This is in part due to expansion of global refinery and terminal footprints.
Even before IMO 2020 is factored in the product tanker market continues to show year-on-year strength, noted president Robert Bugbee.
“In light of Q2 it should be understood we have some really deep refinery turnarounds around the world [but] the market is stronger than it was this time last year in spite of this which gives great confidence,” he said.
“As soon as these refineries start coming back on, the market is going to move higher and as we move into the IMO position it is going to move significantly higher.”
“We would expect LR2s to expand their differential over the MRs and the rest of the fleet as that demand comes in.”
By now your company’s planning for IMO 2020 should be complete and the first phase of implementation underway. Compare your progress against other delegates at the Sulphur Cap 2020 Conference, Awards and Exhibition on 8-9 May in Amsterdam.