What could the unstoppable environmental pressures mean for oil & especially the bunker market?
The environment & COP 26 come back into focus
Over the past 18 months all of the talk has been related to the pandemic, but worldwide politics is shifting and the environmental question is coming back into focus. The build-up to COP 26 starting on October 31st in Glasgow is likely to re-energise the debate. In this report we take an overview of the longer-term prospects for the oil markets and where this could leave the bunker sector in the run-up to political targets set for 2050; it is intended to be agnostic and an attempt to summarise current expectations over the much longer term.
Oil demand forecast to continue growing for at least another 10 years
The first headline is that after the collapse in demand last year, expectations are that the oil market will continue to grow for at least another 10 years, with a number of analysts generally pointing to peak oil demand being reached in the early to mid-2030s.
A consensus view is that the political agenda, legislation, company strategies and personal choices will start to reverse growth in global oil demand from the mid-2030s onwards. The trajectory of decline is difficult to asses at this stage, and analysts have tended to set out various scenarios, but in the illustration here we show a decline that puts oil demand in 2050 just below the peak level seen in 2019 (and more-or-less at the same level as expected for this year).
Sulphur Compliance & Enforcement
It was widely anticipated that IMO 2020 would bring significant challenges as to fuel quality and compliance with the new sulphur limit for VLSFO 0.50% Wt. not least due to the initial changes required for the infrastructure and because of the changing face of blends needed to achieve these lower limits.
It therefore wasn’t too much of a surprise when a spike of claims occurred initially, these perhaps due to cross-over or cross contamination of High Sulphur and Very Low Sulphur Fuels.
However, since then we have settled into a new normal whereby Sulphur Claims are worryingly still responsible for around 1 in 3 of every off- specification notice alleged for VLSFO.
Current Statistics
Data available for the last 90 days suggests that the global average for VLSFO Sulphur Content is 0.46%Wt which on the face of it appears good news.
Globally, when comparing thousands of lines of data, 97.5% of all VLSFOs tested at or below 0.50%Wt Sulphur during this time, 1.7% tested between 0.51 and 0.53%Wt Sulphur and 0.7% tested at or above 0.54%Wt Sulphur
However, when we drill into this further and consider key bunker hubs it is very noticeable how some blending hubs perform much worse than others. For example 4.3% of Rotterdam fuels test between 0.51% and 0.53% and 1.9% of VLSFO’s at 0.54% or above.
Singapore on the other hand, is seen to perform far better with less than 1% of all fuels testing above the 0.50% Sulphur limit which somewhat bucks the general trend that blend hubs are by far the highest risk areas for Sulphur Compliance.