HSFO Outlook – Can we catch up with the cost?

vessel cleaning scrubber
Ultra-compact Marine Scrubbers | Whitepaper
October 26, 2020
HSFO Outlook

The IMO 2020 has pushed vessel operators to opt for cost-reliable fuel options to maximize profitability as conditions have changed due to the global slowdown in the past few months. The HSFO Outlook offers an extensive overview of how it can benefit in managing price and profitability scenarios.

The maritime industry has observed quite a lot of changes since January 2020. As the industry was slowly preparing and transitioning towards IMO 2020, significant and unpredictable incidents drastically impacted global logistics, trade, and fuel economics. From the coronavirus to falling crude oil prices, the need to choose the right method of compliance triggered a debate among vessel operators towards an option that offered both financial viability and operational reliability.

HSFO Outlook

As the implementation of IMO 2020 has imposed strict limits on fuel sulphur content, marine operators have been forced to either use alternative to high sulphur fuel oil (HSFO) or to use scrubbers, meaning an inevitable fluctuation in oil prices. The demand for HSFO was about 3.5 million barrels per day in the year 2018, which was fueling marine operations and marine freight. Now in terms of keeping up with the essentials of IMO 2020, marine operators are estimating and calculating ways to manage the profitability and expenses.

State of Maritime Industry & Scope of Consumption

In order to understand the aspects of the maritime industry in the purview of oil consumption, it can be observed that more than 4 million barrels per day are an average demand for oil fuel in the industry which operates around 50,000 ships globally on a day-to-day basis. The changing trends and compliances will result in the fluctuation of costs and expenses for vessel operators.

Current Costs Fueling-Up the Debate on IMO 2020

High Sulphur Fuel oil has traditionally always been the most widely used fuel option for ship operators. The consumption figure for low sulphur fuel oil in 2019 accounted for just 8% of the cumulative sales. With the introduction of IMO 2020, scenarios changed not only for vessel owners but also for oil refineries who had to ready themselves with very low sulphur fuel oil (VLSFO) which restricts the sulphur content to 0.5%. Thus, demand significantly surged for VLSFO, even with higher production costs compared to the traditional bunker fuels. The consumption figures jumped to almost 80% in 2020.

In the current HSFO outlook scenario, it can be seen that the prices for HFO are around 15-18% lower than that of VLSFO Fuels. It is expected that the range may vary as per other market factors and crude oil prices in the coming months.

Demand & Supply- Industry Trend for Fuel Bunkering

One of the world’s largest hubs for oil bunkering, Singapore used to meet the demand for almost 5 million/metric tonnes of high sulphur fuel oil every year, which is now transitioning to a volume of about 400,000 metric tonnes of low sulphur fuel oil to meet the changing demands of vessel operators due to the change in compliances. As time progresses, the demand for low sulphur fuel and other alternatives will shoot up, influencing the price trends in one way or another. Increased demand for VLSFO will surely result in a price war within the maritime industry as oil refineries push themselves to generate more oil to meet the demand.

Catching Up with the Costs

There is no denying that 2020 has been somewhat of an unprecedented year. Market prices of fuel oil have had large, foreseen as well as unforeseen fluctuations since the IMO 2020 was adopted and also due to the COVID-19 pandemic. Many vessel operators are looking to adapt and stay afloat amidst a market in turmoil brought on by the chaos and confusion of disrupted logistics and operations. But with things gradually returning back to normal, many are finding the best way to catch up with the fuel price competitiveness is by opting for scrubbers, as they allow vessels to run on traditional bunker fuels. These are already 15-20% cheaper than other fuel options, and the spread is set to only grow wider in the days to come. The average period of payback ranges between 2-3 years within which vessel operators can attain significant ROI by saving on fuel and other operational costs. The recommendations are strongly in favor of exhaust gas scrubber systems due to the convenience of installation and operability, including negligible downtimes and partly on-voyage installations. Many large fleet owners and operators, aiming to be at the top of the pack, are already placing their orders well before the start of 2021. If you would like to know more about why our scrubber is perfect for your vessel, get in touch at info@kameliacleantech.com

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