Positive outlook, but some choppy waters ahead and a need for streamlined operations
Brighter skies ahead…
Over the last three years or so, the weakness in the tanker market has clearly manifested itself as a downward trend. However, some analysts believe brighter skies are ahead and this may finally reverse over the course of 2019 and through 2020.
Overcapacity in the product and crude tanker markets is one of the key issues. However, this was symptomatic rather than the root cause; the overcapacity situation was down to too many vessels in a market where demand had shrunk.
Although overcapacity is a structural problem, a market recovery is predicted, a view supported by maritime forecasting and strategic advisory firm MSI. Over the 2019-20 period the problem of overcapacity is set to unwind as adjustments to programs of scrappage and new buildings take effect.
However, it’s not all plain sailing. There are still some choppy waters to navigate. A couple of other key issues are playing into the trend for tanker market consolidation and the need to optimize operating efficiency.
The tanker market is something of a hostage to fortune when it comes to global politics. The re-imposition of sanctions against Iran by the US government is one example of volatility in the operating environment. Lower volumes of crude exports from the Persian Gulf may see more refining in the region, but the products will still have to be moved on.
The tension between the US and China is also creating some uncertainty. Some China importers had suspended US crude imports temporarily. While this has eased recently, the potential for further disruption remains. In the event of an all-out US-China trade war, the flow of crude oil would be seriously affected. Whether crude or refined product, normal tanker activity is likely to be impacted.
2020 sulfur cap
More than 70,000 ships will be affected by the upcoming global 0.50% sulfur cap regulation, which comes into force in 2020. Stricter limits on sulfur (SOx) emissions are already in place in Emission Control Areas (ECAs) in Europe and the Americas, (0.1%), and new control areas are being established in ports and coastal areas in China.
Ship owners are pursuing a number of approaches that will enable them to meet compliance. There are four main options:
1. Change over to marine gas oil (MGO) or a derivative and discontinuing use of high-sulfur fuel oil (HSFO)
2. Switch to very-low-sulfur fuel oil or compliant fuel blends which are rated at 0.50% sulfur
3. Modifying vessels to use alternative sulfur-free fuels such as Liquid Natural Gas (LNG)
4. Modifying vessels by installing scrubbers to clean exhaust gas, enabling ships to carry on using HSFO
There is some supply-side speculation and uncertainty attached to this, mostly from the perspective of the availability of the different fuel types. Refiners are not going to produce stockpiles of each type when there is no clear indication of what the demand for each one is going to be.
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