Source: Ocean Intelligence
January 2nd 2015
The much anticipated new emission control area (ECA) 0.10% sulphur limit, adopted by the International Maritime Organization (IMO) under a 2008 revision of MARPOL Annex VI, has now taken effect.
To date, ECAs are effective in the Baltic Sea, North Sea, North America, and the US Caribbean.
As of January 1, 2015, all vessels are required to burn fuels not exceeding 0.10% sulphur when operating inside an ECA, or use abatement technology such as scrubbers to achieve equivalent sulphur oxide (SOx) emission reductions.
On the first working day of 2015, it was too early to say if suppliers would be able to meet demand for marine gas oil (MGO), the most common grade that meets a 0.10% sulphur limit.
There has been speculation about whether all ships will comply with the new ECA limit, and whether supply of maximum 0.10% sulphur fuel would meet demand if compliance is very high. This could put additional upward pressure on MGO prices relative to other bunker fuel grades.
Ship operators, in particular those with operations falling largely or even exclusively within ECAs, have been dreading the extra cost of MGO.
In June this year, maximum 0.10% sulphur MGO was trading at least $300 per metric ton (MT) more than the standard grade high sulphur fuel oil (HSFO) used on the high seas.
By comparison, the cost of low sulphur fuel oil (LSFO) with no more than 1.00% sulphur that could be used for ECA compliance was around $50 to $60 pmt in the Rotterdam bunkering hub in Europe at the time.
Throughout 2014, the average premium of LSFO 380 centistokes (cSt) fuel in Rotterdam to high sulphur 380 cSt in Rotterdam was $34, ranging from as little as $4 to a maximum of $80.50 pmt, according to Bunkerworld price data.
The premium for LS MGO to HS 380 cSt fuel in Rotterdam, meanwhile, ranged from a high of $325 to a low of $223.50 as 2014 drew to a close.
The average premium for the year 2014 was $283 pmt. In 2013, the average differential between regular HS 380 cSt fuel and LS MGO in Rotterdam was $305.50 pmt.
The lower premiums are a result of tumbling oil prices, which have brought down prices for all shipping fuel grades.
It has helped to ease the financial burden of the new ECA limit on ship operators.
At the peak of oil and bunker prices in June, HS 380 cSt fuel in North West Europe (NWE) averaged $592.50 pmt, LSFO 380 cSt averaged $665 pmt and LS MGO averaged $930.50 pmt.
The NWE average prices for December 2014 had fallen to $336 for HS 380 cSt product, LSFO 380 cSt averaged $365.5 pmt and LS MGO averaged $622.50 pmt in the region.
It means LS MGO meeting the new 2015 ECA sulphur limit was $42.50 pmt cheaper in NWE in December than ECA-compliant LSFO was in June.
However, the percentage differences have fallen between HSFO and LSFO, while the LS MGO percentage premiums are higher.
In June 2014, LSFO in NWE was on average 12% more expensive than HSFO and LS MGO on average 57% more expensive.
In December 2014, LSFO in NWE was on average 9% more expensive than HSFO whereas LS MGO was on average 85% more expensive.