20|20 Marine Energy: Ship Owners Complacent over Fuel Procurement

The low price of crude is creating complacency among ship owners in relation to decisions over fuel procurement strategies, and future sulphur regulations, said Adrian Tolson, Senior Partner at maritime consultancy 20|20 Marine Energy.

Speaking at the UK Chamber of Shipping’s Fueling Operations conference in London, Tolson also stated that the cheap price of bunkers is stifling investment from refiners and physical fuel suppliers, as well as threatening the existence of traditional bunker traders.

“Low oil prices and cheap bunkers have created a state of real flux within the shipping industry,” said Tolson.

“Ship owners have taken their eyes off the ball in relation to future global sulphur regulations. While this is understandable to a certain extent, margins have significantly decreased for fuel suppliers and traders, which is stifling investment in infrastructure, and the indecision over future compliance strategies means that refiners won’t invest in producing more middle distillates to meet the inevitable shortfall in 2020, the likely date for the 0.5% global Emission Control Area.”

Tolson argued that the lower capital requirements needed to purchase bunkers has also created a further incentive for ship owners to go directly to physical suppliers, cutting out the bunker trader, whose existence has already been challenged by credit risk concerns.

According to Tolson, a critical factor in determining the future dynamic of the shipping industry is the price of crude in 2020, and the impact that this will have on distillate prices.

“If the global ECA is implemented in 2020, and if crude, as widely predicted in the industry, increases to $60 per barrel by this date, the key is the effect that this has on the price of distillates, which will be the most widely used compliance solution. Higher priced distillates will see the issue of bunker procurement, the erosion of profits, and concerns over compliance back on ship owners’ boardroom agendas. This could also lead to a significant uptake of scrubbers, as refiners look to sell very cheap heavy fuel oil, a by-product, which can only really be used within the shipping industry.”