Lack of preparation risks ‘chaotic’ shift to cleaner shipping fuel

ANTWERP (Reuters) – The biggest change in shipping fuel for decades is three years away, but shipping and refining companies need to be taking action now to ensure the world will have the millions of barrels of cleaner fuel it will need.

The problem, according to participants at the Platts Middle Distillates conference in Antwerp, is that very few are, raising concerns about volatile prices and potential shortages.

"It's going to be chaotic," said Andrew Laven, regional manager for Middle East and Africa with Bomin, a marine fuel supplier. "We have an enormous amount of work to do."

More than three months ago, the International Maritime Organization (IMO) finalized rules requiring ships worldwide to cut their sulphur emissions to 0.5 percent by 2020, from 3.5 percent now.

Shippers have several options to replace some 3 million barrels per day (bpd) of high-sulphur fuel they currently burn while ferrying everything from grains to flat screen televisions to consumers worldwide.

They can burn lower-sulphur, but more expensive, middle distillates, install "scrubbers" that enable them to burn dirtier fuel, or they can invest in ships powered by liquefied natural gas (LNG).

But each of these plans takes years of preparation, and potentially millions in investment by either shipping companies or oil refineries.

If shippers just switch to distillate fuels, there is no guarantee that refiners can supply the world's ports with enough clean fuel without planning. Those who supply shipping companies now say there are few with concrete plans.

One problem is that a large swath of the shipping industry, the dry bulk tankers used for commodities such as iron ore and grain, is coming out of a punishing financial period that forced some companies into administration – a sting that cut their appetite for investing.

Refineries are also loath to invest in producing more clean fuel without a clear idea of how much the shipping industry will actually consume.

The longer the uncertainty, the more likely that prices of middle distillates that are also used by the world's motorists, mining operations and power generators will be subject to bouts of extreme volatility, conference participants said.