Shipowners look to marine gasoil, not dirty gasoil, for American ECA compliance: trade

One week into tighter emissions standards, shipowners are opting for marine gasoil for compliance rather than boutique ultra-low sulfur fuel oil-type material, which is less expensive but also unfamiliar and potentially risky, US market sources have said.
Since January 1, ships traveling within 200 miles of North America must burn fuel with a maximum sulfur content of 0.1%, down from 1%.

Many shipowners are buying MGO, a distillate fuel that is double the cost of high-sulfur bunker fuel, rather than seeking an alternative fuel that might save money but brings with it unknowns.

“You have to do modifications to the vessels to be able to handle the product,” an East Coast trader said, adding there is a high likelihood of high and ultra-low sulfur fuels co-mingling in tanks and pipes. “So there’s a big risk of being non-compliant when the fuel hits the engine.”

Some bunker fuel suppliers are offering MGO alternatives, often made by blending ultra-low sulfur heating oil or ULSD with residual fuel oil, low-sulfur straight-run fuel oil, VGO or something else. The companies include Chemoil, Atlantic Gulf Bunkering, Shell and Peninsula, to name a few.

But the companies’ products — if they are available — often differ when it comes to viscosity, API gravity, acidity and even sulfur, which gives pause to shipowners, who like consistency.

“Over the last few weeks [suppliers] have said they will carry this new low-sulfur product and then when we ask for pricing and delivery dates for inquiries they say they have nothing available,” a Houston-based trader said.

Several market sources have said through the first week of January no deals for 0.1%S bunker fuel have been reported; however, a US Gulf Coast physical bunker supplier said some sales were closed with very small volumes, but neither price nor volumes of such deals were disclosed by the supplier.

The product is available in Freeport, Bahamas, at a $50/mt discount to MGO, an East Coast trader said. But the trader cautioned against reading too much into the price because the port has only one supplier.

Other market sources have said MGO alternatives have been offered anywhere from $10-$40/mt less expensive than MGO; however, buyers have mostly eschewed a 0.1%S dirty fuel in favor of MGO, a US Atlantic Coast supplier said.

“Almost all customers are buying MGO,” the supplier said. “There’s little to no 0.1%S dirty oil demand.”

It would cost each ship upward of $1 million to clean tanks, add equipment and more for ships to take a 0.1%S dirty fuel.

“The savings in a 0.1%S fuel is around $30-$40/mt. It’s not worth the investment at this time,” the supplier said.

Other sources generally agreed, but did not rule out the possibility of greater adoption of a 0.1%S dirty fuel if a more uniform specification were to be adopted by the industry and crude prices rebounded.

The need to pinch pennies has waned in recent months. In Houston, shipowners are paying for MGO near what they paid for RMG 380 3.5%S in summer 2014, when Brent crude was still trading north of $110/b, compared to the low-$50/b mark now.

“At this point, every shipowner is looking at historically cheap bunker fuel,” the Atlantic Coast supplier said. “Even MGO is cheaper than high-sulfur bunker fuel from just last year.”
Source: Platts