Physical supplier highlights serious uncertainties about availability and quality of bunker fuels post-2020

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During the MWA 2019 conference, which took place in Houston this month, industry stakeholders discussed about the situation in the US Gulf market and the possible consequences of the new IMO regulation.

During the conference, Zach Stansbury, a senior bunker trader of GCC Bunkers, which has entered the physical supply market of Houston and Galveston since 2017 in order to focus on the supply of low sulfur fuels, has informed the participants that the company will not offer 3.5% sulfur fuel unless there are specific contracts in place.

According to Stansbury, availability of HSFO in the US Gulf post-2020 is still unclear. Despite the industry’s perception that availability is sufficient, Stansbury says this is not the case since most of the U.S. HSFO is utilised in other processes and while HSFO is imported from other countries, such as Mexico, current demand is higher than supply and the imbalance will become even greater post 2020.

Another issue is the uncertainty over the HSFO infrastructure facilities since barges and terminals are recently converted in order to be able to handle VLSFO or MGO instead of HSFO. Therefore, it is expected that the HSFO compatible infrastructure will be much less post-2020 than today. However, the level of reduction is still unclear and therefore whether the infrastructure will be sufficient to support 3.5% sulfur fuel demand remains unknown.

On the other hand, while Stansbury believes that the availability of IMO-2020 compliant fuel is not at risk, he raises serious quality concerns by saying that most of the VLSFO blends ‘will be complicated and non-homogeneous,’ while their stability and compatibility will be a major concern for the ship operators.

This might be the case considering that the 0.5% sulfur fuels will include various different products such as straight run fuel oil, AGO and VGO blends, distillate/HSFO blends and slurry blends, therefore inconsistent quality is expected especially between aromatic and paraffinic blends, an issue which has already been raised by more bunker suppliers so far.

According to Stansbury, demand for such VLSFO products may outstrip supply by over 1 million tons per quarter by the first Half of 2020, however the additional VLSFO demand could be met by low sulfur MGO, he noted.

In the middle of such quantity and quality uncertainties, the patents which have been filed by some oil majors over their very low sulfur products might create a litigation risk in the industry and increase counter-party disputes, which will not help the industry to become more competitive and transparent.

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