ClassNK Publishes Infographic on use of VLSFO

ClassNK has issued a poster for onboard use which details the common main engine issues and recommended countermeasures when using very low sulphur fuel oil (VLSFO).

After examining reported issues along with the properties of compliant fuel oils, the class society says it has compiled recommended measures for early detection and prevention of issues on board. The information has been released in a poster format so that crew members can quickly refer to it in case of any problems.

The poster can be accessed here

What $70+ oil means to container, tanker and dry bulk shipping

What $70+ oil means to container, tanker and dry bulk shipping

Spread between VLSFO and HSFO marine fuel is highest since March 2020

The price of Brent crude topped $72 per barrel Thursday, with West Texas Intermediate above $70. As the price of oil goes, so goes the price of marine fuel. And that means higher costs for ship operators, and in the case of the container sector, more fuel surcharges passed along to cargo shippers.

Higher bunker (marine fuel) costs affect different shipping segments differently. American Shipper looked at each segment, and for a broader perspective on where pricing will go next, interviewed Richard Joswick, head of global oil analytics at S&P Global Platts.

How shippers of containerized goods are affected
In the container sector, liner companies pass along higher fuel costs via a bunker adjustment factor (BAF). Carrier filings of BAFs to Distribution Publications Inc. (DPI) show that BAFs plunged in Q3 2020, after the COVID-induced collapse in oil price, and have been ramping back up ever since.

Asia-West Coast BAFs of carriers CMA CGM, COSCO, Evergreen and OOCL that have already been filed for Q3 2021 are up by an average of $229 per forty-foot equivalent unit (FEU) or 69% versus the same period last year. Asia-East Coast BAFs of these four carriers for the third quarter are up an average of $409 per FEU or 78% year on year.

(Charts: American Shipper based on data from DPI)

In normal times, such price increases would garner more attention. But in the current situation, where shippers are often paying well over $10,000 per FEU from Asia to the U.S., the rising BAF is a drop in the bucket.

Steve Ferreira, founder and CEO of Ocean Audit, told American Shipper, “Two years ago, this would have been a bigger story. Now, for shippers, it’s just another nail in the coffin. At this point, I don’t even think the logistics folks are paying attention to bunkers. I think the BCOs [beneficial cargo owners] should do a better job of negotiating BAFs, given the egregious rates they’re paying.”

Ferreira also said that BAFs being offered by non-vessel-operating common carriers (NVOCCs) are “substantially higher” than what liners are posting for the same dates and routes. “They [NVOCCs] are marking it up,” he claimed.

Scrubber implications across all segments

From the shipowning perspective, one effect that spans all the major segments — container, tanker and dry bulk — involves exhaust gas scrubbers.

Since Jan. 1, 2020, under the IMO 2020 regulation, ships without scrubbers must burn more expensive 0.5% sulfur fuel known as very low sulfur fuel oil (VLSFO) or 0.1% sulfur marine gas oil (MGO). Ships with scrubbers can continue to burn cheaper 3.5% sulfur fuel known as high sulfur fuel oil (HSFO).

According to pricing data from Ship & Bunker, the HSFO-VLSFO spread hit $121 per metric ton on Wednesday, its highest level since March 5, 2020. The spread has been at $100 or above throughout this year — and more shipowners are now opting to install scrubbers to capture the savings.


Prices are average for top 20 global bunker hubs (Chart: American Shipper based on data from Ship & Bunker)

How container liner operators are affected

The question for container liner operators is: Does BAF income from their cargo shippers entirely offset fuel-price increases? Are liners taking a loss on bunker costs or are they taking a profit, by passing along more costs to shippers than liners pay?

Liner contract earnings from shippers are directly affected by BAFs. During the conference call for Q3 2020 results, Maersk executives said that higher spot rates were offset by declining contract rates pulled lower by bunker clauses as fuel prices decreased. That dynamic should now reverse. With BAFs increasing, liners’ reported contract rates should not only benefit from the higher annual rates that were recently negotiated, but also from BAF upside.

Meanwhile, liners’ actual fuel spend has become much more unpredictable given extreme port congestion around the world. On one hand, ships are reportedly sailing faster on backhaul runs to make up for lost time, and fuel consumption is exponential to speed. On the other hand, ships that are stuck at anchor for weeks are burning much less fuel.

Yet another variable: What type of fuel are container ships burning, VLSFO or HSFO? Of all the various ship categories, larger container ships have installed the most scrubbers — they are burning much more HSFO than VLSFO.

According to data from Clarksons Research, 67% of ultra-large container ships on the water (defined by Clarksons as having at least 15,000 twenty-foot equivalent units of capacity) now have scrubbers. An additional 5% of the existing fleet is due for retrofits. Of newbuilds on order in this vessel class, 78% will be scrubber-equipped. Including existing and new ships, 74% of the ultra-large container ships are set to have scrubbers. This is up from 70% in January and 60% in January 2020.

How tanker owners are affected

In the tanker sector, the rise in the price of oil is a positive sign for future cargo demand, both on the crude and product tanker fronts. But tanker operators are extremely exposed to the spot market, and in a spot voyage deal, the operator pays for fuel. The rising cost of marine fuel is a negative for costs.

Tanker rates remain extremely depressed. Tankers with scrubbers save money on fuel, but that only means they’re bleeding less cash than tankers without scrubbers.

According to Clarksons, older VLCCs (very large crude carriers; tankers that carry 2 million barrels of oil) earned the equivalent of $3,400 per day in the spot market on Thursday, with rates for older scrubber-equipped ships more than double that — $8,200 a day — due to fuel savings. Modern “eco” nonscrubber VLCCs built in 2015 or later were earning $9,700 per day, modern VLCCs with scrubbers $13,100 per day.

But the all-in cash breakeven of a VLCC is around $22,000-$25,000 per day, according to analyst estimates. Even a modern VLCC with a scrubber is heavily in the red.

Nevertheless, owners of large tankers continue to embrace scrubbers. According to data from Clarksons, 40% of VLCCs on the water now have scrubbers, with an additional 2% of existing VLCCs due for retrofits. Of VLCC newbuilds on order, 43% will have scrubbers. Altogether, including existing and ordered ships, 42% of VLCCs are set to use scrubbers. That’s up from 40% in January and 35% in January 2020.

Many of the initial tanker scrubber refit plans were delayed in Q4 2019 and H1 2020 because rates were extremely high. The last thing an owner wants to do is put a tanker in the yard at the very moment returns are booming. But the market was the mirror opposite in Q4 2020 and Q1 2021. Rates were so low that owners accelerated drydockings and brought ships into yards ahead of schedule because it was the best time to be out of the spot market, allowing more scrubber retrofits.

Jefferies analyst Randy Giveans confirmed, “Owners are certainly continuing to retrofit large tankers with scrubbers, especially as rates remain so weak and the HSFO-VLSFO spread widens. Even at a $100 per ton spread, the VLCC premium is at least $4,500 per day, which is very meaningful at current rate levels.”

How dry bulk carrier owners are affected

The more time a ship is at sea, the more savings from scrubbers. As a result, scrubbers make more economic sense on larger ships because they sail longer routes. Just as scrubber penetration is highest on ultra-large container ships and VLCCs, it is highest in the dry bulk sector among Capesizes (bulkers with capacity of 100,000 deadweight tons or more).

Clarksons data shows that 42% of on-the-water Capesizes already have scrubbers, plus another 1% set for retrofits. Of Capesizes on order, 41% will feature scrubbers. Including existing and new ships, 43% of Capesizes are set to have scrubbers. That compares to 42% in January and 34% in January 2020.

Savings derived from the HSFO-VLSFO spread are shown over time by the scrubber and nonscrubber Capesize indices compiled by S&P Global Platts. Its Cape T4 index assessed the rate for nonscrubber Capes at $19,920 per day on Wednesday. The assessed rate for scrubber-equipped Capes was $23,316 per day due to fuel savings, $3,396 or 17% higher.


TCE rate = time-charter equivalent rate (Chart: American Shipper based on data from S&P Global Platts)

Unlike tankers, dry bulk ships are making money, so scrubbers actually increase earnings as opposed to decrease losses. According to various analysts, the all-in cash breakeven for a Capesize vessel is somewhere between $13,000-$17,000 per day.

What’s next for marine fuel prices?

Several factors are driving marine fuel prices and spreads. One is the price of oil. The recent rise has spurred chatter on much higher prices to come. Joswick of S&P Global Platts doesn’t agree.

“The price of around $70 does not surprise us. Global demand is improving and the huge inventory surplus we saw in 2020 is being worked off and is mostly gone. A lot depends on what happens with OPEC — which is waiting to see if demand increases before they increase their production more — and with Iran. We think some sort of deal with Iran [with the U.S., on sanctions] will probably occur. The question is when.”

Joswick believes that “as we get towards autumn, oil prices are more likely to go down than up. The fundamental outlook is that it will be tightest through the summer and then ease after that. We don’t see any fundamental reason for oil prices to skyrocket.” That, in turn, implies no reason for marine fuel pricing to skyrocket.

As for the spread, there are developments that could push the price of VLSFO higher and the price of HSFO lower, benefiting scrubber economics.

On the VLSFO side, jet fuel is an important issue. COVID caused jet-fuel demand to collapse, but demand is rebounding with the return of domestic air travel. Nonscrubber ships consume a lot more VLSFO than MGO, and jet-fuel demand is more linked to MGO than VLSFO pricing, but there is a connection between jet fuel and VLSFO.

If there is less demand for jet fuel, some of the molecules that would have otherwise gone to jet fuel go into the diesel pool and some of the heaviest components with higher boiling points can be used for the creation of VLSFO (a negative for VLSFO pricing). When there is more demand for jet fuel, those extra molecules are reduced (a positive for VLSFO pricing).

“We’re getting jet fuel demand back, which is supportive of diesel and MGO and to a lesser extent, VLSFO,” explained Joswick. MGO “is getting stronger, and the key question is where VLSFO [fits in the equation]. VLSFO had been moving in lockstep with MGO, but it’s not right now.”

On the HSFO side, the issue is refinery utilization. When refinery utilization is low — as it was during the peak COVID period — less HSFO is created. If there is less HSFO to process, it is easier for the most efficient units of the refining system to convert that HSFO to diesel. When refinery utilization increases, as is happening now, less efficient units are required to convert the HSFO.

“If you start bringing on units that are less efficient, it is only economic if the price spread between diesel and HSFO is wider. When that happens, the price of HSFO goes down relative to diesel,” explained Joswick.

The VLSFO tailwind and HSFO headwind are positive for scrubber economics. But Joswick emphasized that this will not lead to the extreme spreads seen in Q4 2019 and Q1 2020, at the time IMO 2020 was implemented.

“We should expect some widening of the spreads over time, but we’re not going to see a [spread] spike like we had before. The problem with IMO 2020 was that it was only announced three years prior to implementation and it usually takes refiners five years to build something. Well, we’re now going on five years. The new facilities are coming online. So, there will be a gradual widening [of the spread] but we’re not going to see a repeat of IMO 2020.”

Published by freightwaves.com

 

Sulphur2020 New Round Up 7 September

Sulphur2020 New Round Up 7 September

Sulphur2020 News Round-Up 7 September 2020

10 featured news updates on Sulphur2020 including a Podcast and the fact that Containerships overtake tankers for the most fitted scrubbers details

Mitsubishi Shipbuilding’s marine sulphur oxides (SOx) scrubbers have been successfully installed on 22 ships across three ship types during the last 8 months.

The DIA-SOx scrubbers have been installed as scheduled despite COVID-19 restrictions. Remote commissioning conducted via close communication and cooperation with the engineers of its local partners in China and Singapore respectively enabled Mitsubishi Shipbuilding to continue with the planned installations. Read more https://vpoglobal.com/2020/09/04/mitsubishi-shipbuilding-completes-22-scrubber-retrofits/

Rotterdam Hi-5 bunker spread hits all-time low

The premium of very low sulfur fuel oil over its high sulfur equivalent at Rotterdam port fell to a record low on Aug. 21, as the latter stays resilient to bearish fundamentals in the global oil complex.

Read blog post here https://www.bunkerworld.com/news/insight/157893/Britt-Russell-Webster-James-Goldburn/Rotterdam-Hi-5-bunker-spread-hits-all-time-low

Shipper relief as ocean carriers finally scrap low-sulphur surcharges

Ocean carriers are officially scrapping the low-sulphur fuel surcharges introduced last year to mitigate the impact of the 1 January IMO 0.5% sulphur cap regulations on marine fuel.

Maintaining low-sulphur surcharges as fuel prices plunged has been a bone of contention for shippers, who have criticised carriers for being slow to ditch the additional fee. Read in full https://theloadstar.com/shipper-relief-as-ocean-carriers-finally-scrap-low-sulphur-surcharges/

Demand for HSFO at Singapore rising as more scrubbers fitted

Singapore has seen a rise in demand for high sulfur bunker fuel of late from the growing number of ships that have completed scrubber installations, given the limited availability of the grade at smaller ports, market sources said. More https://www.bunkerworld.com/news/157981

MARINE FUEL 0.5%S: Ample supply weighs on global marine fuel markets in September

Global marine fuel 0.5% prices are expected to be capped by increasing supply and depressed demand from the retail sector in September as refiners continue to grapple with weak low sulfur fuel oil margins.

Inventory levels in Asia in particular are expected to rise as an arbitrage window from the West that opened in early-August has market participants expecting at least a 500,000 mt increase in volumes landing in Singapore in September from the month before. Read the blog here https://www.bunkerworld.com/news/insight/157965/Rohan-Menon-Sarah-Jane-FlawsBeth-Brown/MARINE-FUEL-0-5-S-Ample-supply-weighs-on-global-marine-fuel-markets-in-September

South Korea tightens sulphur cap By Hwee Hwee Tan
The six ports affected by the new regulatory cap are Incheon, Pyeongtaek-Dangjin, Yeosu, Gwangyang, Busan and Ulsan. Vessels are required to switch to 0.1% sulphur fuel within an hour of anchoring or docking and do so until an hour before leaving. From January 1, 2022 ships must switch over on entering the emissions control areas Read here (subscription) https://lloydslist.maritimeintelligence.informa.com/LL1133720/South-Korea-tightens-sulphur-cap

Pricing for marine fuel 0.5%S in Balboa, Houston jumps on tight supply, wholesale values

Bullish crude complex also plays role in recent bunkers price increases. Read here https://www.bunkerworld.com/news/157960

Listen: Asian HSFO markets endure IMO 2020, coronavirus challenges

Featuring    Mriganka Jaipuriyar     Surabhi Sahu     Oceana Zhou Commodity Oil,  Shipping Length 12:12
Topic COVID 19: Coronavirus Outbreak,  Environment and Sustainability,  IMO 2020

Light sulfur fuel oil has been the main marine fuel of choice worldwide, but high sulfur fuel oil has held its stead in Asia. S&P Global Platts senior oil experts Surabhi Sahu and Oceana Zhou join Platts Asia Head of News Mriganka Jaipuriyar in examining the demand for HSFO particularly in Singapore, which is the world’s largest bunkering port. They also discuss China’s fuel demand and outlook, as well as the impact of the coronavirus pandemic on the Asian fuel oil markets. Link to listen https://www.bunkerworld.com/news/insight/157949/Surabhi-Sahu/Listen-Asian-HSFO-markets-endure-IMO-2020-coronavirus-challenges

Singapore LSFO-HSFO spread falls to 3-month low on rising LSFO supply

Bunker suppliers in Singapore reported fewer inquiries for low sulfur bunker fuel in the week ended Aug. 28. More here https://www.bunkerworld.com/news/157953 

Containerships overtake crude oil tankers as most scrubber-fitted sector

Containerships with a collective cargo carrying capacity of 5.3m TEU are now fitted with an exhaust gas cleaning system (scrubber) to remove sulphur oxides (SOx) from the exhaust gasses generated by the combustion processes in marine engines and thereby comply with the IMO 2020 global sulphur regulation which came into force on 1 January 2020.

By the start of July, the share of the containership fleet with scrubbers installed exceeded that of the crude oil tanker fleet. At that time, the container shipping sector became the most scrubber-fitted amongst the main cargo carrying ship types. “In order to cut the sulphur oxides emission, shipowners who can afford to buy a scrubber have done so to a substantial extent, with investments predominantly directed towards high consumption ship types,” says Peter Sand, BIMCO’s Chief Shipping Analyst and continues – read more: https://www.bimco.org/news/market_analysis/2020/20200813containerships_overtake_crudeoil_tankers_scrubber

 

 

 

 

News Round Up: 31 August 2020

News Round Up: 31 August 2020

News Update 31 August 2020

Here are 13 news stories that have appeared over the past week including the impact of the slowdown on the trade and prices.

Bangladesh’s LSFO demand to double in H2 as imports commence – Bunkerworld

The South Asian country started importing 0.005% sulfur gas oil in July. Read here https://www.bunkerworld.com/news/157933

Singapore high-sulfur bunker demand endures as sales increase – Bunkerworld

Spot market volatility props up HSFO demand. Read here https://www.bunkerworld.com/news/157933

Transition to low sulphur fuel not without problems, survey shows – Ship Management International

A survey has shown that the transition to IMO 2020 compliant fuel oil has not been without problems.Between February and May 2020 BIMCO, The International Chamber of Shipping (ICS), INTERCARGO and INTERTANKO conducted The Fuel Oil Quality and Safety Survey with the aim to get a greater understanding of the quality of the new0.5% sulphur fuel oils and possible safety implications of the IMO 2020 sulphur regulation. Read article here https://shipmanagementinternational.com/transition-to-low-sulphur-fuel-not-without-problems/

East Indian Refiner to Produce 0.5% Sulfur Marine Fuel – Bunkerworld

CPCL says initial runs will be 5,000 mt a month. Read here https://www.bunkerworld.com/news/157929

Alphatanker Sees 2021 Worldscale Flat Rates Drop by 20-25% on VLSFO Collapse – Ship and Bunker

Worldscale flat rates are set annually and are used as the basis of some freight markets with trades being made at a differential to them. Read here https://shipandbunker.com/news/world/884650-alphatanker-sees-2021-worldscale-flat-rates-drop-by-20-25-on-vlsfo-collapse

Durban VLSFO bunker prices jump $61/mt in two days – Bunkerworld

Delivered-Durban 0.5% sulfur fuel oil bunker prices reached $435/mt on Aug. 25, up from $374/mt on Aug. 21 in just two consecutive trading sessions, S&P Global Platts data shows. Read here https://www.bunkerworld.com/news/157920

High-Sulfur Fuel Oil Prices Return to Pre-Crude Collapse Levels – Ship and Bunker

While HSFO has rallied strongly, VLSFO prices remain significantly lower than their levels before the OPEC+ row hammered markets. Read here

https://shipandbunker.com/news/emea/331902-high-sulfur-fuel-oil-prices-return-to-pre-crude-collapse-levels

Upcoming S Korea ECA low sulfur norms at ports to have a minimal impact: sources – Bunkerworld

South Korea’s new Emission Control Area, requiring ships to use fuel with maximum 0.1% sulfur content while berthing from Sept. 1, is expected to have a minimal impact, market sources said in the week started Aug. 23. Read here https://www.bunkerworld.com/news/157904

MGO-ULSFO bunker spread hits 8-month low in Europe – Bunkerworld

Ultra low sulfur fuel oil remains cheaper than marine gasoil but only marginally as price differentials narrowed to an eight-month low in Europe, S&P Global Platts data showed. Read here https://www.bunkerworld.com/news/insight/157903

HSFO still a force in bunker fuel market post-IMO 2020 – Bunkerworld

Once a staple of the bunkers market, demand for high sulfur (3.5%) fuel oil was expected to drop off a cliff after IMO 2020 — — the lower, 0.5% sulfur cap on marine fuel globally since Jan. 1. Read here https://www.bunkerworld.com/news/157943

Singapore 380 CST HSFO differential slips to discount on declining demand – Bunkerworld

The Singapore 380 CST high sulfur fuel oil cash differential over the grade’s swaps values slipped into negative territory on Aug. 27 due to declining demand from Saudi Arabia. Read here https://www.bunkerworld.com/news/157946

Straits Inter Logistics Sees 63% Drop in Oil Trading and Bunkering Profit – Ship and Bunker

The company mostly cited this year’s slowdown in shipping as being behind its worsening performance. Read here https://shipandbunker.com/news/apac/187721-straits-inter-logistics-sees-63-drop-in-oil-trading-and-bunkering-profit

 

News Round Up: 03 August 2020

News Round Up: 03 August 2020

Putting the puzzle together: The 2020 Sulphur Cap

To understand how the maritime industry sees development unfolding over the next decade, Castrol surveyed 50 high-level industry stakeholders at the beginning of 2020. The results gave us interesting observations into how owners, operators, managers, regulators, bunker traders and fuel providers expect the industry to evolve.

https://castrolacademy.castrol.com/newswire/article/putting-puzzle-together-2020-sulphur-cap

Former IMO emissions chief joins UK coastguard

Edmund Hughes has joined the UK’s Maritime and Coastguard Agency as maritime emissions reduction engineering lead.

https://shipandbunker.com/news/emea/251062-former-imo-emissions-chief-joins-uk-coastguard

Consultancy Brookes Bell to Open UK Bunker Testing Lab

The facility will be within a new laboratory the company plans to open near Liverpool.

https://shipandbunker.com/news/emea/335529-consultancy-brookes-bell-to-open-uk-bunker-testing-lab

News Round Up: 28 July 2020

News Round Up: 28 July 2020

Sulphur-sniffing drone patrols Danish strait

The Danish Maritime Authority (DMA) has confirmed that over the next four months, a new drone that will sniff out sulphur emissions from ships will be tested over the Great Belt strait in Denmark.

https://vpoglobal.com/2020/07/24/sulphur-sniffing-drone-patrols-danish-strait/

New study unveils significant market demand for low carbon shipping fuels

A new study from marine and energy consultancy BLUE Insight has found that more than 40 organisations are vying for a share of the $1.4 trillion low carbon shipping fuels and energy market.

https://vpoglobal.com/2020/07/24/new-study-unveils-significant-market-demand-for-low-carbon-shipping-fuels/

Dutch Shipping Company Develops Clipper Ship

A Dutch shipping company is planning to build a sailing clipper to transport cargo emissions free.

https://shipandbunker.com/news/emea/643038-dutch-shipping-company-develops-clipper-ship

Report: Container Shipping is Making Progress Reducing CO2 Emissions

Carbon dioxide emissions from the global containerized shipping industry declined in 2019 and continued to make steady progress according to a new report from Clean Cargo.

https://www.maritime-executive.com/article/report-container-shipping-is-making-progress-reducing-co2-emissions

Maersk joins forces with Nike, Mercedes-Benz and Microsoft in new green partnership

In a new green partnership, Maersk joins forces with some of the world’s biggest shippers to propel the green transition. The goal is to make zero emissions possible by 2050.

https://shippingwatch.com/carriers/article12297365.ece