With only nine months to go before the implementation of IMO 2020, the only certain thing about the forthcoming regulation is that there will be uncertainty. In an effort to better understand the impact, ClipperData has prepared a forecast for marine fuel consumption that covers the period between 2020 and 2025.
We expect marine gasoil (MGO), an ultra-low-sulfur option, will become the fuel du jour, accounting for about 40 percent of total marine fuel demand. Robust demand for MGO is expected in emissions control areas in particular.
Another option to meet the sulfur limit is low sulfur fuel oil (LSFO). Though availability and compatibility issues will be concerns, its anticipated lower price relative to MGO suggests LSFO will be central to the post-2020 marine fuel marketplace. We expect LSFO to make up 32 percent of marine fuel demand in 2020.
High sulfur fuel oil (HSFO) cleaned by scrubbers will account for 17.5 percent of marine fuel demand, while LNG will only represent a small fraction.
Our forecast for noncompliance is a bit more conservative than other estimates. While OPEC put noncompliance measured by illegal consumption of HSFO at around 30 percent, we expect something closer to 10 percent. We think physical bunker suppliers will be reluctant to sell non-compliant HSFO to vessels without a scrubber for fear of reprisal from port states.
By 2021, shipowners will be more comfortable with LSFO compatibility. MGO will fade away as LSFO increases its market share. By 2025, we expect LSFO and MGO to take up roughly the same market share at approximately 35 percent of global bunker fuel consumption apiece.
The economic incentive to install a scrubber continues beyond 2020 as the global market grapples with the glut of HSFO. After making up 17.5 percent of demand in 2020, we expect scrubbed HSFO will constitute 28 percent of marine fuel demand in 2025. LNG remains a niche fuel.
Noncompliance, meanwhile, drops off after 2020 because we believe HSFO prices will recover and penalties from noncompliance will discourage the incentive to cheat. Here too, we are bit more conservative relative to our peers. We believe noncompliance will fall from 10 percent in 2020 to 1.5 percent in 2024, while the IEA believes noncompliance will fall from 16 percent in 2020 to 2 percent in 2024.