Shipowners wait for the other shoe to drop

You’d forgive shipowners for feeling a little uncertain about their fuel bills at the moment. Last year they faced apocalyptic warnings about the rise in costs to come as European and North American regulators cut sulphur limits for bunkers, but then oil prices collapsed. Many are now left wondering when they’re going to start feeling the financial impact of the new regulations.

Marine fuel sulphur limits for vessels in emission control areas (ECAs) of Europe and North America were cut to 0.1pc from 1pc  at the start of this year, meaning most shipowners in these areas had to start using more expensive marine gasoil (MGO) instead of fuel oil. But MGO in northwest Europe now costs roughly what fuel oil did before the price collapse last year, postponing the cost impact of the new regulations. Indeed, the Worldscale Association this month slashed its ECA fixed rate differentials and said it would review the levels on a quarterly basis.

“The sting has been taken out of the higher ECA costs,” Klaus Stamp, chairman of independent tanker owner association Intertanko’s bunker subcommittee, said at the International Bunker Conference in Oslo this week. “A significant financial impact was expected with the very high price of gasoil.”

Those who invested in means of getting around the forecast higher costs associated with the new sulphur regulations are now busy re-evaluating their investments. Many fitted their vessels with emissions-cleaning scrubbers to allow them to continue burning fuel oil at a time when suppliers were forecasting MGO prices this year at more than $1,000/t and a premium to fuel oil of at least $300/t, getting wider as the demand increased. That spread has narrowed this year to around $250/t, leaving those who installed scrubbers with a longer period before their investment starts saving them money. And regulators have yet to rule on whether the waste product from the scrubbers can be released into the water or whether shipowners must pay to dispose of it at port, further complicating the economics.

Most expect these investments to work out eventually and, of course, the rules now in force are not the end of the regulatory road, but the short-term outlook has become more confusing. And while fuel costs are expected not to return to last year’s peaks any time soon, this short-term nervousness is still affecting the industry. Most shipowners reduced their fleets’ average speeds over the past few years to maximise fuel efficiency and cut costs, and it’s only the VLCC owners now starting to increase speeds again to get more use out of their vessels.

“The last four months have got us all shaken up,” Marine and Energy Consulting managing director Robin Meech said at the conference. “It’s harder to plan. It’s harder to be confident in decision-making.”

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