Research and consultancy firm Wood Mackenzie believes demand for marine gas oil (MGO) at China will increase by about 5 million metric tonnes (mt) by 2020 due to the International Maritime Organization (IMO) sulphur cap.
“The Chinese government is making great effort to turn some major ports in to bunkering hubs by setting up free-trade zones in Zhoushan and Hainan, which are strategically located,” said Yujiao Lei, a consultant at the firm, as quoted in recent reports.
“As such, we expect 90 kb/d (around 5 million mt) of bunker demand to shift from Singapore to China in 2020 for international shipping.
“By generating this demand, the Chinese government is not only creating a bunkering industry but also providing a solution for its refining industry's diesel surplus.
“Additional marine fuel demand in China to meet IMO regulations will also put the country very close to Singapore in terms of total marine fuel demand.”
Lei, meanwhile, noted the Chinese government announcing the start of China’s emission control area (ECA) effective 2019; vessels will be required to use 0.5% sulphur limit marine fuel within 12 nautical miles of the coast in addition to berthing operations.
The government also suggested the implementation of a 0.1% sulphur cap on marine fuel by 2020, though this is to be subjected to further review.
“The new regulations demonstrate the central government’s strong commitment to fight pollution from mobile sources,” she notes.
“Coming only days after the announcement of the country’s ‘blue sky defence’ action plan, the extension of the ECAs is a clear sign that China will strive for 100% compliance when the IMO's global sulphur cap regulation starts in January 2020.”
According to Lei, China's bunker fuel demand currently exceeds 650 kb/d; the volume consumed is mainly fuel oil and MGO, where nearly two-thirds of it is used in inland waterways and the remainder in the coastal areas.
Nearly 300 kb/d of MGO is used as a bunker fuel, with varying sulphur levels, within inland waterways.
“To combat this, the government announced last month a unified diesel specification (China VI or 0.001% wt% sulphur) for marine use in China starting January 2019,” she says.
“In addition to MGO, about 100 kb/d of high-sulphur fuel oil (HSFO) is also consumed in the inland waterways. However, HSFO use in inland waters will no longer be allowed from 2019, unless the vessels are fitted with sulphur-reducing equipment, such as scrubbers.”
Lei expects a demand shift of 100 kb/d from HSFO to China VI diesel, which “should come as good news for Chinese refiners that receive higher prices for domestic diesel sales compared with exports.”
“However, this also means higher shipping costs for consumers and industries, such as power plants and steel, if the additional freight cost is passed on as vessels switch from HSFO to expensive China VI diesel,” she says.
Moving on, Lei believes the ECA extension in 2019 will have “minimal impact”.
“Firstly, the majority of marine traffic is currently concentrated in the existing ECAs, so the extension is unlikely to significantly affect shipping or provide upside to bunker demand,” she explains.
“However, shippers operating in the new ECA zones will have to make some changes, such as carrying dual fuels to comply with the regulation.
“Secondly, China's coastal ECAs only reach 12 nautical miles out to sea, and ships generally tend to slow down as they near the coast, so fuel consumption in these areas is minimal.”
Manifold Times in April interviewed several Singapore-based players who believe the republic will still remain a bunker hub come 2020.
Published: 25 July, 2018
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