Environmental regulations and future fleet development• Marine Bunkers 0.5% closes in on Marine...
Transcript of Environmental regulations and future fleet development• Marine Bunkers 0.5% closes in on Marine...
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Environmental regulations
and future fleet developmentIMSF / April 2018
Dalibor Gogic
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What do we now so far?
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“For anyone out there thinking this is not going to happen [in 2020], please put that idea to bed - it will enter into force.”
– Jeff Lantz, Director, Commercial Regulations & Standards, USCG, speaking at CMA 13 March 2018
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No delay in 1 January 2020 enforcement date
HFO carriage ban
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The shipping industry has four main options, and likelihood is that a combination will be
implemented
• Installation of Exhaust Gas Cleaning Systems (EGCS or
‘scrubbers’) to remove sulphur oxides from the exhaust on
board.
• Switching away from high sulphur fuel oil grades to low-
sulphur fuels, based on gasoil, low sulphur residuals, or
hybrids.
• Switch to alternative fuel sources, notably liquefied
natural gas, which requires vessel modifications.
• Non-compliance, either sanctioned due to acknowledged
supply-side difficulties (transitional, category-based
exemptions, local non-availability etc.), or grey area non-
compliance (i.e. malicious intent).
Environmental regulations and future fleet development
4
Install scrubbers
1Switch to LNG
(or other alternative fuel)
2
Switch to compliant fuel
3
Non-compliance
4
IMSF / April 2018
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IHS Markit currently identifies 419 vessels with scrubbers installed or on order; LNG
adoption as a compliance solution is limited with ~ 267 vessels currently identified with
LNG capability
• A minority of vessels fits scrubbers on new vessels today
(only 1.5% of the 2017 order book).
• Number of orders for new container vessels did choose to fit scrubbers. This
could be a precursor for future appetite from the container sector.
• Concerns remain on the carrying of caustic in the case of closed loop scrubbers
and water effluent quality in the case of open loop
• Cruise ships and RoRo/Car carriers are the 2 main categories of ships which are
installing scrubbers
• This is mainly being driven by operation in ECAs but also from “green”
credentials in the case of the cruise ships
• As with scrubbers, the LNG fuelled vessels are mainly operating in ECAs
• Majority of the types of vessels are offshore ships (i.e. FPSO/FLNG) and ferries
• These are vessels that traditionally traveling short distances rather than
intercontinental, but more longer-haul services are slowly becoming available
• CMA CGM’s annoucement on LNG-fueled mega-containers may be an important
milestone that LNG could be viable for vessels operating globally in the near future
• It as yet to be seen, but they claim that they operated along the Asia-Europe
service with a single LNG fill. The ships will be in operations in late 2019
IMSF / April 2018
5
26 %
24 %
18 %
5 %
12 %
6 %
4 %5 %
Offshore
Ferry
Tanker
LPG
Containership
Cruise
Ro-ro/car carriers
Dry cargo
LNG fueled vessels - ship type breakdown
Source: IHS Markit © 2018 IHS Markit
Environmental regulations and future fleet development
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The bunker fuel sector may be small, but has the potential to have significant impact on
global crude oil and refined products markets
Other12 %
Gasoline30 %
Diesel (ex-bunker)
32 %
Jet/Kero9%
Naphtha8 %
Fuel oil(ex-bunker)
5%
Marine Diesel1 %
Cutter stock1%
Residue2%
Bunker4%
Global Refined Product Demand: 2016
Source: IHS Markit © 2017 IHS Markit
• Residual bunker fuel represents a small share of global demand
for refined products, total consumption is ~200 million tonnes (~4
million b/d)
• The marine industry is the most significant demand center for
high sulphur residue
• High sulphur residue is the most difficult stream to
process/upgrade in refineries, due to complex molecules, high
carbon content and high levels of contaminants such as nitrogen,
nickel, and vanadium.
• Therefore we expect the challenge of a strong reduction in
bunker fuel sulphur content to be twofold for the refining industry
1. Producing sufficient quantities of 0.50%S bunker fuels, regardless of their
composition (gasoil, residual, hybrid)
2. Finding ways to dispose of the high sulphur residue excess that previously found
a home in bunker fuel within the refining system or in new markets
IMSF / April 2018
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Environmental regulations and future fleet development
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What do we expect to see
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Post 2020 IMO sulphur switch presumptions and key differentials; Switch to Marine Gasoil
and large differential between LSFO and HSFO
26%
53%11%
27%60%
15%
1% 1%
2%3%
0%
20%
40%
60%
80%
100%
120%
Current 2020
Gas/Diesel oil HSFO 0.5-2%S LSFO 0.5%S HSFO >2%S ULSFO 0.1%S LNG
Global Bunker balances post IMO specifications
Source: IHS Markit © 2018 IHS Markit
IHS Price Forecast Comparison 2017 US dollars
2019 2020
Dated Brent FOB $/bbl 57.31 62.50
Dated Brent FOB $/T 433.09 472.31
Gasoil 0.1% CIF NWE $/T 539.7 627.2
Marine Gasoil 0.1% CIF NWE $/T 516.5 600.3
Marine Bunkers 0.5% CIF NWE $/T 408.7 544.3
Marine Bunkers 3.5% (MFO 380) CIF NWE $/T 268.6 175.1
Differentials
Marine Gasoil 0.1% minus Marine Bunkers 3.5% $/T 247.9 425.1
Marine Bunkers 0.5% minus Marine Bunkers 3.5% $/T 140.1 369.2
Marine Bunkers 0.1% minus Marine Bunkers 0.5% $/T 107.8 56
Source: IHS Markit
© 2018 IHS
Markit
IMSF / April 2018
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• Crude, Gasoil and 0.5% bunkers price all rise; 3.5 % sulfur Marine Bunkers Price falls
substantially
• Marine Bunkers 0.5% closes in on Marine Gasoil price owing to high production cost
• Produced by blending large quantity of “gasoil” material with higher sulfur residues
• Or from ultra-low sulfur residues that have high alternative value in refineries as upgrader
feedstock
• As expected, the new sulfur compliance will have a strong shift towards gasoil/diesel
quality components (26% to 53%) while reducing the call for residue-based components.
• IHS Markit has compared the total fuel oil (FO) bunker demand, which include gasoil
bunker (MGO), today versus year 2020 (IMO compliance year)
• 0.10 % S bunkers are largely gasoil-based, while fuel oil bunkers (1.0 % S or 3.5 % S)
are majority residue-based with some gasoil cutter-stock blending to meet the finished
bunker fuel specifications
Environmental regulations and future fleet development
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Some rough calculations based on some rough presumptions – Larger the vessel faster
ROI is expected giving a hint to possible scrubber adoption
ROI for scrubbers based on following presumptions
Vessel type Vessel size Consumption
Tonns/day
Yearly LSFO/HSFO
differential in million
USD at (250$/T)
Yearly LSFO/HSFO
differential in million
USD at (369$/T)
Scrubber cost
installation million
USD
Estimated ROI
differential 250$/T
Years
Estimated ROI
differential 369$/T
Years
Bulkers Large Handy 25 1.9 2.7 5-10 3.0-7.0 2.3-4.5
Supra 33 2.5 3.6 5-10 2.5-5.0 1.6-3.2
Panamax 35 2.6 3.8 5-10 2.4-4.7 1.6-3.1
Capesize 60 4.5 6.6 10-12 2.5-3.0 1.3-2.5
Tankers MR 37 2.6 3.8 5-10 2.4-4.8 1.5-3.0
Panamax 40 3 4.4 5-10 2.0-4.0 1.3-2.6
Aframax 50 3.8 5.5 7.5-10 2.3-3.0 1.5-2.0
Suezmax 65 4.9 7.1 10-12 2.3-2.7 1.5-1.8
VLCC 80 6 8.8 10-12 1.8-2.2 1.2-1.5
Container 3,000 teu 75 5.6 8.3 5-10 1.0-2.0 0.6-1.3
5,400 teu 96 7.2 10.6 10-12 1.5-1.8 1.0-1.2
10,000 teu 170 12.8 18.8 10-12 0.8-1.0 0.5-0.7
15,000 teu 218 16.4 24.1 10-12 0.6-0.8 0.4-0.5
Notes: Yearly steaming at 300 days per year; Consumption numbers presumed at full operating speed/slow steaming not taken into account; Yearly scrubbers operating cost presumed at 0.5 million USD; cost of immobilization/time of charter not taken into
account
Source: IHS Markit © 2018 IHS Markit
IMSF / April 2018
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Environmental regulations and future fleet development
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What is potential for fleet removals?
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Fleets are expected to have some potential for removals facing combination of SOx and BWT
regulations – Big chunk of merchant fleet estimated due for Special Surveys adding to cost
6,9%10,6%
17,5% 14,5%
3,6% 4,7% 5,4%5,8%
1,3% 1,4% 0,8%3,1%
0%
20%
40%
60%
80%
100%
120%
Bulk Carriers Container Ships(fully cellular)
Crude Oil Tankers Product Tankers
0-5 6-10 11-15 16-20 21-25 25+
Major fleet expected age profile 2020
Source: IHS Markit © 2018 IHS Markit
ship type
IMSF / April 2018Environmental regulations and future fleet development
11
3,02%
5,21%
6,44%
6,92%
7,45%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
0
500
1 000
1 500
2 000
2 500
2018 2019 2020 2021 2022
Product Tankers Crude Oil Tankers
Container Ships Bulk Carriers
% of currently active fleet capacity (GT)
Estimated fleet due for 3rd special survey and later
Notes: Calculated vessel age between 15 and 30 years of age take into account; Estimated
yearly fleet growth between 2-3%
Source: IHS Markit © 2018 IHS Markit
Nu
mb
er
of
vessels
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Dry bulk fleet - Fleet structure is expected to remain relatively young thanks to recent
demolition activity, still major capacity reduction expected to be coming from larger ships
1,9%
4,8%
5,5%
6,2%5,9%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
0
100
200
300
400
500
600
700
800
2018 2019 2020 2021 2022
100,000 dwt> 65,000-99,999 dwt
40,000-64,999 dwt 10,000-39,999 dwt
% of currently active fleet capacity (dwt)
Source: IHS Markit © 2018 IHS Markit
No
of
sh
ips
Estimated Dry bulk fleet due for 3rd special survey and later
IMSF / April 2018
12
2,8%
1,3%1,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
0
5 000 000
10 000 000
15 000 000
20 000 000
25 000 000
15 20 25+
100,000 dwt 65,000-99,999 dwt 40,000-64,999 dwt 10,000-39,999 dwt % of projected active fleet
Estimated Dry bulk ships special surveys in 2020 based on currently active fleet capacity
Source: IHS Markit © 2018 IHS Markit
dw
t
0% 20% 40% 60% 80% 100%
100,000 dwt >
65,000-99,999 dwt
40,000-65,000 dwt
10,000-39,999 dwt
0-5 6-10 11-15 16-20 21-25 25+
Dry Bulk expected fleet age capacity profile - 2020
Source: IHS Markit © 2018 IHS Markit
Sh
ip s
ize
17%
14%
14%
7.6%
Environmental regulations and future fleet development
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Container fleet age structure is very young particularly among larger fleets; Fuel
inefficient mid and small sizes expected to be targeted mostly by demolition
IMSF / April 2018
13
4,1%
1,8%
0,8%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
4,5%
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
1 000 000
15 20 25 +
10,000 teu > 5,400-10,000 3,000-5,400 teu 0-3,000 teu % of projected active fleet
Estimated Container ships special surveys in 2020 based on currently active fleet capacity
Source: IHS Markit © 2018 IHS Markit
teu
s
0% 20% 40% 60% 80% 100%
10,000 teu>
5,400-10,000 teu
3,000-5,400 teu
0-3,000 teu
Total fleet
0-5 6-10 11-15 16-20 21-25 25+
Containerships expected fleet age capacity profile - 2020
Source: IHS Markit © 2018 IHS Markit
Sh
ip s
ize
17%
38%
22%
21%
Environmental regulations and future fleet development
2,9%
4,1%
6,6%
8,8% 8,9%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
9,0%
10,0%
0
100
200
300
400
500
600
700
800
900
2018 2019 2020 2021 2022
10,000 teu > 5,400-10,000 3,000-5,400 teu 0-3,000 teu % of currently active fleet capacity (teu)
Estimated Container ships fleet due for 3rd special survey and later
Source: IHS Markit © 2018 IHS Markit
No
of
sh
ips
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Crude oil tankers fleets are expected to see significant capacity of ships 15 years and
older, which are potential candidates for removal; potential development of two tier market
IMSF / April 2018
14
4,8%
6,5%
7,8%
6,2%
8,2%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
9,0%
0
50
100
150
200
250
2018 2019 2020 2021 2022
Aframax/LR2 Suezmax VLCC % of currently active fleet capacity (dwt)
Estimated Crude oil tankers fleet due for 3rd special survey and later
Source: IHS Markit © 2018 IHS Markit
No
of
sh
ips
4,3%
3,2%
0,2%0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
4,5%
5,0%
0
5 000 000
10 000 000
15 000 000
20 000 000
25 000 000
15 20 25 +
Aframax Suezmax VLCC % of projected active fleet
Estimated Crude oil tankers special surveys 2020 based on currently active fleet capacity
Source: IHS Markit © 2018 IHS Markit
dw
t
0% 20% 40% 60% 80% 100%
Aframax
Suezmax
VLCC
0-5 6-10 11-15 16-20 21-25 25+
Crude oil tankers expected fleet age capacity profile - 2020
Source: IHS Markit © 2018 IHS Markit
Sh
ip s
ize
23%
24%
25%
Environmental regulations and future fleet development
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Product tanker ages structure very similar to Crude oil Tankers structure, with demolition
candidates more likely coming from ships 20 years and older
IMSF / April 2018
15
4,4%
8,3% 8,5% 8,8%
10,5%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
0
100
200
300
400
500
600
2018 2019 2020 2021 2022
Handytankers MR Panamax/LR1 % of currently active fleet capacity (dwt)
Estimated Product tankers fleet due for 3rd special survey and later
Source: IHS Markit © 2018 IHS Markit
No
of
sh
ips
5,7%
1,9%
0,8%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
15 20 25+
Handy MR Panamax % of projected active fleet
Estimated Product tankers special surveys in 2020 based on currently active fleet capacity
Source: IHS Markit © 2018 IHS Markit
dw
t
0% 20% 40% 60% 80% 100%
Panamax/LR1
MR tankers
Handy tanker
0-5 6-10 11-15 16-20 21-25 25+
Source: IHS Markit © 2018 IHS Markit
Sh
ip s
ize
Product tankers expected fleet age capacity profile - 2020
25%
24%
20%
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Older inefficient fleets are expected to find themselves under pressure, although some
resilience may come from repaid CAPEX and finding market niches
• Switch to Marine Gasoil/LHSFO is expected post 2020 with HSFO and LSFO differential is expected to be
relatively high 250$ +, IHSMarkit estimates differential at 369$ for 2020.
• Excess residual fuel is expected to be redirected to energy markets competing with other energy sources
such as coal which is expected to negatively influence the price of HSFO.
• Based on our presumptions ROI on scrubbers varies, although it seems that it is faster for bigger fleets. If
judging by that, larger fleets are expected to have scrubber technology installed.
• Shipowners face hard decisions post 2020. Although scrubber installation and retrofit in case of high
differential can be repaid relatively quickly in case of big differential spread, shipowners face other costs of
compliance such as BWTS and maintenance cost. On top of that with IMO expecting to further curb CO2
shipping emissions, additional requirements can be expected.
• Although there is an argument for ultimate environmental cost/cost of burning LSFO/Marine Gasoil to be
passed to shippers, it seems that two markets are likely to develop. Older/less efficient tonnage is expected
to find itself under pressure.
• Older fleets (15+ years) are generally expected to be phased out in the first few years of implementation.
Fleets expected to find themselves under pressure are Medium and Small sized Container fleets, Large and
Medium sized Dry bulk fleets, Large Crude oil tankers.
IMSF / April 2018
16
Environmental regulations and future fleet development
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