One of the biggest shake-ups in the product markets is right around the corner — the IMO 2020 regulation bans high sulfur fuel oil (HSFO) from the bunker pool. Although the shipping and refining industries have been preparing for the new rules for several years, there have been fears of shortfalls when the rules come into effect.

Indeed, the bunker fuel demand landscape will change dramatically in 2020. Demand for HSFO, the main vessel fuel since the 1960’s, will fall from 3.5 mb/d to 1.4 mb/d in just one year. We also estimate that there will be 4 000 scrubbers installed on large vessels by the end of 2020, consuming 700 kb/d of fuel oil.

Many shipping companies will prefer to use marine gasoil (MGO) instead of a new very low sulfur fuel oil (VLSFO), despite its higher price. The quantity of VLSFO produced will initially be limited to 1 mb/d because of reduced availability of low sulphur blending materials. Some shipping companies may also be reluctant to adopt a new fuel immediately, and would prefer to use MGO until they have confidence that VLSFO will be easily available in ports and stable and compatible with similar grades.

While there is no doubt that this transformation will be a challenge, it will be manageable over time. Orders for scrubbers to be fitted on ships have increased, and as demand for high sulphur fuel oil plummets there will be enough marine gasoil as well as new ultra-low sulphur fuel oil available to fill the gap.