In the two years since the International Maritime Organization (IMO) settled on 2020 for the date for the sulphur cap, the shipping industry has got used to doom and gloom warnings of unpreparedness. But as the date approaches, these voices are getting louder and more urgent.
Speaking to IHS Markit, Jerome Leprince-Ringuet, managing director of Total Marine Fuels Global Solutions (TMFGS), has warned that while its very low sulphur fuel oil (VLSFO) products have been developed and tested, such a level of readiness is not always matched by its customers.
“Globally I feel that the shipping industry is not prepared,” Leprince-Ringuet said, identifying two main warning flags. “First, we don’t see all our customers ringing and calling us for a more detailed information on the global cap – which is surprising because the deadline is approaching. The other thing is that it’s not yet clear which products are coming on to the market and therefore they [customers] are a bit lost.”
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In terms of its own offering, TMFGS plans to offer several different qualities of VLSFO to the market. “The basic version will be a VLSFO that will only comply with the ISO 8217 standard,” Leprince-Ringuet said.” However, if customers want reassurances about the fuel’s performances that go beyond the ISO 8217 specification, TMFGS will offer the option to purchase premium products. These will come in the form of either a VLSFO blend with higher quality components according to specific customer requests, or a VLSFO mainly made of Total refineries straight run. Both products will offer better guarantees in terms of flashpoint and cold properties than the basic version. The premium products will also be compatible with the basic blended VLSFO products that TMFGS will be supplying in other ports. “For additional comfort we will provide this guarantee for specific products and we will make sure that it works,” Leprince-Ringuet said.
Along with many refining industries participants, TMFGS believes many of vessels will initially be tempted to switch to using marine gasoil (MGO) because of its familiarity. However, given the price pressures that are expected to exist, this should prove temporary. “It will not last long because gasoil will be so expensive that they will consider, very rapidly, the new products.”
TMFGS began the process of creating its own VLSFO products back in 2017. First it selected a variety of residual streams from its refineries and potential blendstocks from its existing trading portfolio, examining them for issues such as compatibility and flashpoint. It then defined recipes that would prove logistically, technically, and economically viable, and would fit the needs of its customers.
Jerome Leprince-Ringuet. Credit: Total
The first sea trial was conducted in the mid-2018. The blend functioned well in the vessel’s fuel systems, and showed good combustion properties too. “It was also successful for our customer, as it found a series of takeaways from that first trial.” TMFGS has since been contacted by other customers seeking trials on their own vessels, something they see as important to ensure a smooth switchover. “Even if everything is OK, at least they will have trained their crews, they will have seen with more detail the consequences and have more idea what choice to make by 1 January 2020,” he said.
Despite these successes, Leprince-Ringuet is concerned that there might be significant problems ahead for owners and operators as they transition to using new fuels. His advice to them is to look now at their preparedness, in particular their crew training. Smaller owners and operators, with more limited capacity to handle the technical impact of the sulphur cap, are of particular concern.
Availability of product is another area causing jangled industry nerves, but on this Leprince-Ringuet was able to offer limited reassurance. “Generally speaking, we will serve our customer base with VLSFO products and they will receive product from us in sufficient quantities,” with TMFGS planning to offer product in its existing markets of Europe, Asia and Africa. Even in smaller, secondary ports, it believes supply should not be a problem. “Most secondary ports will provide at least gasoil, and I think you will find VLSFO products nearly everywhere.”
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There had also been speculation that vessels could struggle to source high sulphur fuel oil (HSFO), which would negate the benefits of installing scrubbers. On this, Leprince-Ringuet was once again able to offer soothing words, up to a point. “If you have a term contract then you will always find HFO at a decent price. Without that, then you might take a risk, but if you are calling at the main hubs then you will find it. For the tramping business and in secondary ports, it may be a bit more difficult, but I am quite sure you will usually find HSFO available. We will have HSFO for our customers in the main hubs that we are already servicing”. Although he noted that the logistics of supplying HFO to vessels might be hampered if barges are stocked with VLSFO products, he was clear that “[HSFO] will always be cheaper than low sulphur fuels.”
Anyone seeking reassurance about the pricing of VLSFO, however, will be disappointed. Although Leprince-Ringuet was at pains to point out that the price of fuels would be based on market assessments at the time – as with any commodity – he noted it was obvious that VLSFO would be costlier than HSFO at present, given the requirements to produce them. “It’s a matter of logic,” he pointed out, “Customers will pay a higher price. The question is how much.”
That highlights another threat from the sulphur cap, and one that may not necessarily threaten the smallest players, but the financially weakest ones. “The question is credit,” Leprince-Ringuet explained. “This is something that we feel will be a game-changer.” With the price of bunker fuel set to rise significantly, the worry is that companies with strained financials will struggle to secure credit from their suppliers, with the quantities they can purchase being reduced by higher overall unit prices. Although there are ways to mitigate this, such as warranting the payment, Leprince-Ringuet could not hide his concern. “Some [owners] may suffer, and have to pay the price of that […] It’s a question of cash, it’s a question of treasury. At the end of the day, it will put pressure on their finances.”