Tuesday, September 15th, 2020 - Transparency Market Research

Environmental Concerns Lead to Development of Efficient Low-sulfur Bunker Fuels

For several decades, the shipping industry was under significant pressure to curb harmful emissions and use marine or bunker fuels with low sulfur content. Recent developments in the bunker fuel market suggest that achieving greener marine ecosystem will be a reality soon. The pressure on the marine industry is largely driven by the growing need to curb air pollution and significant rise in the number of childhood asthma cases worldwide. Cargo, container, and tanker fleet play a major role in adding to the air pollution across the world. These major sources of air pollution, which run on bunker fuels laden with sulfur have also caused significant damage to communities that live close to shipping channels.

Despite efforts being made to use low-sulfur fuels, emissions from cargo ships continue to pose a major threat to the environment. In the wake of these growing concerns, stringent air quality regulations have been formulated, which are likely to set the pace for the growth of the bunker fuel market during the forecast period (2019-2027). While high sulfur fuel oils (HSFO) enter the last leg of their journey, demand for low sulfur fuel oils is set to witness a steady growth in the coming years.

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International Marine Organization Regulations to Impact Growth of Bunker Fuel Market

With mounting pressure to clean their act, the marine industry is set to witness a major overhaul in the forthcoming years. Efforts to curb sulfur-emission have gained significant traction in the bunker fuel market in the past three to four years. Drastic changes in sulfur-emission policies are expected to influence the growth of the market for bunker fuels in the coming decade. In 2016, when the International Marine Organization agreed to restrict the sulfur content in bunker fuels to around 0.5% by 2020, the stage was set for a paradigm shift in the bunker fuel market toward the use of low-sulfur bunker fuels. While the demand for high sulfur fuel oils will witness a gradual decline, it will provide a boost to the demand for low-sulfur fuel oils and liquefied natural gas (LNG). The fluctuating prices of liquefied natural gas or alternative bunker fuels could pose a major hurdle for stakeholders involved in the bunker fuel market value chain. Several shippers are exploring the potential of alternative for high sulfur fuel oils by installing exhaust scrubbers or tilting toward liquefied natural gas.

Although installing scrubbers could potentially result in high capital expenses, it will enable shipping companies to use high sulfur fuel oil. In addition, stakeholders in the bunker fuel market are also expected to negotiate their way through steep up-front costs and large-scale availability of liquefied natural– two factors that could deter the demand for liquefied natural gas during the coming period.

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Demand for Marine Diesel Oil Likely to Rise

Barriers put forward by liquefied natural gas and environmental concerns over the deployment of high sulfur fuel oils have opened up the floodgates for marine diesel oil to penetrate the bunker fuel market. The new regulations laid down by the International Marine Organization offers significant promise for stakeholders eyeing investment opportunities and potential applications of marine diesel oils. The shift in the tide toward marine diesel oil is likely to result in higher crude runs. Furthermore, the blazing demand for marine diesel oils is expected to topple the prices of high sulfur fuel oils, which, in turn, will widen the spread between marine diesel oil and high sulfur resid bunker. At present, as marine diesel fuel are set to replace high sulfur fuel oils, producers of high sulfur fuel oils are expected to find other end uses, including power generation. The demand for low-sulfur fuel oils during the forecast period will hinge on a range of factors, of which the segregation of low-sulfur resid materials will play an important role. New commercial agreements and in logistics and tankage will shape the future for low-sulfur oils.

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