Analysis: Spike predicted in ECA fuel premium
9th June 2014 17:14 GMT

An analysis of Bunkerworld price data suggests the cost of operating in emission control areas (ECAs) could be higher than some calculations have predicted.

The sulphur limit for fuels used inside ECAs falls from 1.00% to 0.10% in January next year.

A number of studies making projections for the extra cost of operating inside ECAs from the start of 2015 have put the differential between marine gas oil (MGO) and standard grade high sulphur fuel oil (HSFO) at $300 per metric tonne (mt)

That number is quite close to the current premium for MGO with no more than 0.10% sulphur in Rotterdam compared to a regular 380 centistokes (cSt) high sulphur fuel oil (HSFO) in the port, which averaged $302 pmt in May 2014, according to Bunkerworld data.

The cost of compliant 380 cSt fuel oil (LS 380), meanwhile, was $60 pmt above the HSFO price in the port, the Bunkerworld data showed.

That put the ECA fuel premium at 10% in Rotterdam at present, and at 52% if looking at MGO in the port.

But Rotterdam is one of the most competitive ports in the world for bunker prices, both for HSFO, LSFO and MGO. Likewise, the port’s premium for MGO over HSFO is among the lowest in the world.

Bunkerworld data for other major ports that lie within or near the ECAs in Northern Europe, making them important points for lifting ECA-compliant fuels, show significantly higher MGO premiums.

The price difference between 380 cSt HSFO and LS MGO in May was $344 pmt in Gibraltar (57% premium), $338 in Falmouth (52% premium), $342 in Hamburg (58% premium) and $353 pmt in the market around Gothenburg (59% premium).

By comparison, the price differential between HSFO and LSFO in these ports ranged from $57 (Falmouth) to $74 (Gibraltar), putting the current ECA fuel premium in these ports at 9-12%.

Higher premiums outside Europe

European ports currently offer the smallest premiums for ECA compliant fuels both with regards to the current 1.00% sulphur limit and for MGO meeting a 0.10% sulphur limit.

As of May 2014, the ECA fuel (LSFO) premium in US ports ranged from as little as 11% in New York, through to 16% in Houston and 23% in Los Angeles, while it was 15% in Singapore, according to Bunkerworld data

Looking at average Bunkerworld price data for May 2014, MGO with no more than 0.10% sulphur in Singapore cost $349 pmt more than regular HSFO, or 59% more. The cost of LSFO compliant with the current 1.00% sulphur limit in ECAs, meanwhile, was $91 pmt higher, putting the current ECA premium at 15% for fuels bought in Singapore.

In key US ports the premium for LS MGO compared to 380 cSt HSFO was higher still, ranging from around $380 in Houston (63% premium), $387 in New York (63% premium) and $372.50 in Los Angeles (60.5% premium).

Percentage-wise the premiums are not that much higher than in Europe, but with the higher starting point the premium in dollars becomes significantly higher than the $300 often used by analysts.


More demand, higher prices in 2015?

Distillate demand will increase in 2015 if the majority of ship operators switch to MGO to comply with the new ECA limit, and although there has been some uptake of scrubbers the impact of this is expected to be slight.

One estimate predicts that consumption of MGO will increase by 50 million metric tonnes (mt) in 2015, which would be equivalent to approximately 3% of total global middle-distillate consumption.

According to a report in Lloyd’s List, there have only been two years — 2004 and 2010 — in which middle-distillate consumption increased by that amount since 2000. In both cases, demand growth of this volume resulted in a 20% price increase in US highway diesel prices. If history repeats itself, we could expect MGO prices to increase by approximately 20% in response to rising demand, at least initially.

Applying this extra 20% to the LS MGO price averages in May 2014, and assuming no change in HSFO prices, would put a much more hefty premium on ECA compliant fuels.

Sticking to the key ports, we see the LS MGO premium over regular HSFO in Rotterdam rise from $302 to $479 pmt, an 83% premium compared to the current 52% premium.

In Gibraltar, the LS MGO premium over regular HSFO goes from $344 to $550 pmt, meaning the premium goes up from 57% to 75%.

In Singapore, the LS MGO premium over regular HSFO in goes from $380 to $584 pmt, and the precentage of the premium goes up from 59% to 90.5%.

For Los Angeles, applying a 20% price hike for LS MGO would see the premium over HSFO rise from $372.50 pmt (60.5%) in May 2014 to $570 pmt, or a 93% premium over HSFO.


Cost impact for operators

The cost impacts will vary depending on trade routes. At present, the ECA "tax" is around 10-15% for a liner operating between the eastern US seaboard and Europe.

For a liner operator between ports in the Far East and the US West Coast, the current ECA tax would be around 15-20% or more, but the ship would spend relatively less time inside ECAs as only the North American end of the journey involves operating inside an ECA.

An analysis in Lloyd’s List compared two liner services – the Atlantic Express, ATX, which serves the Europe-North America trade, and the Super Shuttle Express, SSX, which serves the Asia-North America trade, modelled using Mercator’s proprietary voyage costing model.

Whereas only one of the six ports connected by the SSX service is located in an ECA, all seven of the ATX ports of call are located in an ECA. Consequently, the ATX would be operating in an ECA 35% of the time, compared to only 8% for the SSX.

The analysis said the associated rise in fuel cost for the ATX liner service in 2015 would be 23% if fuel prices remain unchanged, but 33% if MGO prices increase by 20%.

Projected fuel expenditures for the SSX, by comparison, would increase by 6% if fuel prices remain unchanged, or by 11% if MGO prices rise by 20% in 2015.

If MGO prices increase 20%, and assuming that fuel costs currently account for 50% of total operations costs, total operating costs will likely increase more than 15% for the ATX and 5% for the SSX, it was suggested.

This could lead some operators to reconsider their routes to minimise the time spent inside ECAs and increase the time spent on the high seas outside ECAs to reduce fuel cost.


Unni Einemo, 9th June 2014 17:14 GMT
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