IMO's commitment to VSLSO from 2020-II: Where will the surplus HSFO go?
The IEA also reveals interesting insights into where the surplus HSFO might go, which of course has implications for trade flows. 8They estimate that spare capacity in the power generation sector could absorb nearly 0.5 million b/d of HSFO demand, predominantly to destinations in the Middle East and Africa which would support longer voyages. 8Furthermore, by considering HSFO and VLSFO as dirty products, the total market share lost to MGO is just under 1 million b/d, which is likely to be reduced to 0.5 million b/d when new sources of demand, (i.e. power generation) are considered. 8Over time refinery upgrades will gradually come online, suggesting more VLSFO will be produced at the expense of HSFO. 8Assuming compatibility issues are overcome by this stage, higher availability of VLSFO should support a demand shift from MGO to VLSFO. In time this would see the volume of dirty bunker fuel cargoes being transported on tankers move close to pre-2020 levels. 8Further, if refiners are to invest in upgrading capacity, and if sufficient volumes of VLSFO will eventually be produced, what are the longer-term benefits of the scrubbers? 8Will the spread between VLSFO and HSFO be enough to make the investment viable in the longer term? 8Undoubtedly, the short repayment horizon would appear to make scrubbers effective for those who install them ready for 2020. But, as time progresses post-2020, the spread between MGO and HSFO is likely to narrow, whilst refinery upgrades could see HSFO supply tighten. Click on Report for more.