Maersk has inked a deal to secure very low-sulfur bunkers at Europe’s largest container gateway amid questions about the global availability of IMO 2020-compliant fuels ahead of the fast-approaching Jan. 1 mandate.
Maersk’s agreement with Koole Terminals at the Port of Rotterdam will meet 5 to 10 percent of its annual fuel demand.
It’s Maersk’s second such tie-up following a deal earlier this year with a US refiner. Cosco Shipping signed its own low-sulfur supply contract in March.
The deals come as the availability of very low-sulfur fuel oil (VLSFO) remains a very real and open question ahead of the International Maritime Organization's mandate to burn fuel containing no more than 0.5 percent sulfur, down from the existing cap of 3.5 percent. The International Energy Agency has said global production of VLSFO will be limited to roughly 1 million barrels per day in the early days of the mandate due to the lack of low-sulfur blending components.
“The fuel manufacturing process allows Maersk to produce compatible low-sulfur fuels that complies with the IMO 2020 sulfur cap implementation …,” Niels Henrik Lindegaard, head of Maersk Oil Trading at A.P. Moller-Maersk, said in a statement Thursday. “Our activities with Koole will be an important driver in ensuring stable, reliable services for Maersk’s customers during a potentially volatile period for global shipping.”
Koole will produce the VLSFO from the petrochemical industrial distillation unit at its Botlek site in the Rotterdam port.
“Koole Terminals continues to explore opportunities to contribute to a sustainable society,” Koole CEO John Kraakman said in the statement. “One of the initiatives is to utilize our PID [Petrochemical Industrial Distillation] unit for producing environmentally friendly transportation fuels.”
The unit will also be available to Maersk for the production of 0.1 percent sulfur bunker fuel required in Emission Control Area (ECA) zones.
The deal with Koole is not Maersk’s first agreement to secure compliant bunkers. US refiner PBF said in February it would restart part of an idled asphalt plant in southern New Jersey to produce 1.25 million mt/year of 0.5 percent fuel for Maersk, about 10 percent of the carrier’s yearly fuel requirements. Cosco Shipping in late March said it inked a low-sulfur supply deal with Double Rich Limited, a subsidiary of China Marine Bunker.
Compliant fuel supplies an open question
Doubts about the availability of VLSFO could push many shipping companies to burn marine gasoil (MGO), overlooking any price spikes because it’s a known compliant fuel that will be more readily available in global ports, according to the Paris-based IEA.
Still, VLSFO supplies are not expected to be a problem in primary shipping corridors such as the US Gulf to Rotterdam to Fujairah to Singapore, analysts say. But supplies could be short in other spots, such as Africa and some locations in Latin America.
“We think compliant fuels will be available in the main shipping corridors,” Stephen Jew, director of global refining and marketing at IHS Markit, told JOC.com in late June. “The problem is outside the main corridors.”
IHS Markit is the parent company of JOC.com.
The availability concern was echoed by the US Energy Information Administration. “Although large bunkering ports, such as Singapore, Fujairah … and Rotterdam … are likely to have both IMO-compliant fuels and non-compliant fuels, smaller ports and the vessels that visit them may have difficulties,” EIA said.
Energy news and pricing outlet Argus, in a mid-August IMO 2020 blog post, said supply preparations will hasten over the next few months.
“Refiners will ramp up production of compliant bunker fuels, marine gasoil and VLSFO,” it said. “Some refiners have already produced batches of products, but they’ve not been at volumes that fully test their supply chains. From August onwards, we expect refiners to begin making the changes in operations to produce low-sulfur bunker components at scale. As this advances, they will be testing their supply chains to look for bottlenecks through the fourth quarter.”
Once supply ramps up, bunker sellers will increase their storage of compliant fuels, Argus said.
Argus expects the price spread between high-sulfur fuel oil and IMO-compliant fuels to be at its widest in the early months of mandate implementation, possibly jumping to more than $300/mt. The spread should narrow after the first quarter, pushed by more vessels with scrubbers going online and shipowners generally feeling more comfortable operating in the new fuel environment, it said. But Argus still sees the spread above $200/mt.
Contact Kevin Saville at email@example.com.