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The shipping business gets ready–with new fees–for the dawn of cleaner fuels « The Barrel Blog

The bunker fuel market in the Atlantic Basin is just a bit more than 100 days away from the next shift in the sulfur emissions cap on ships traveling within 200 miles of shore in North America and North West Europe, a designated Emissions Control Area. And some of its impact on costs is starting to show up.

After several months of vague rumblings about higher costs, we’re beginning to see a clearer picture of just how much more shippers expect to pay to comply with this stricter rule. MSC on Monday became what we believe is the third company to announce per-container surcharges intended to offset its expected higher fuel bills come January.

It follows Maersk Line, who announced the same thing in July, and a much smaller shipper called Rickmers-Linie, which said last week it would levy a surcharge but hasn’t said how much it will be.

Maersk’s move will put a $50-$150 surcharge on 40-foot containers to offset what it expects to be about $250 million in additional fuel costs from tighter emissions regulations set to take effect in January, it said Monday. Starting next year, ships traveling within 200 miles of shore in North America and the Baltic and North seas must limit sulfur emissions from fuel to 0.1%, down from 1%, under rules established by the International Maritime Organization.

It’s only natural to expect this sort of thing. Airlines, cab companies, food-distribution outfits — whenever their fuel bills rise, it’s the customer that uses their services who ultimately pays. Now that the two largest shippers have announced ECA-related fuel surcharges, I would expect the rest of the industry to follow suit with similar measures.

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What a few years ago seemed a long way off is now very real. For example, Energy Aspects, a European consultancy, wrote recently that low sulfur fuel oil demand — the type that would have been a staple to meet bunker fuel demand in the past-is expected to drop by 0.17 million barrels/day — 26,772 mt/day — in 2015 as vessels operating in Europe’s Emission Control Areas in the Baltic and North seas switch to 0.1% sulfur compliant fuels.

But what will they turn to? As my colleague Erduan Reid recently reported, various oil companies have come up with 0.1% sulfur blends, to be used instead of pricier marine diesel or marine gasoil, but they aren’t compatible with each other. In his reporting, he cited four companies: ExxonMobil, Litasco, Neste Oil and Cepsa. ” (A major problem is that the) 0.1% grades — based on the ones released so far — are not going to be compatible so you won’t be able to store them in the same tank aboard ship, you won’t be able to mix different grades and if you can’t get it at the next port then you’re stuck burning DMA (marine gasoil),” one source in the industry said.

Erduan also reported that the terms of warranties on ship engines in existing fleets also are expected to be an obstacle to the use of new blends of marine fuel.

(One other problem: some of those fuels are reported to be prone to a buildup of paraffinic wax. So while heating storage tanks at ports can deal with that problem, there might also be a need to heat tanks onboard ships, yet another cost or just another reason to stick with pricier marine gasoil).

Platts’ Jelena Grigorjeva reports that difficulty predicting prices is leading several ship owners to delay fixing their 2015 fuel supplies, potentially running the risk of allocating most of their fuel supplies next year to the spot market. That includes container ship owners which have predictable trade locations and typically negotiate their fuel supplies on long-term contracts.

One thing is obvious from these surcharges. While tankers may eventually turn to scrubbers to burn higher-sulfur fuel oil, or do a bigger retrofit that would allow LNG as a tanker fuel, for now, it’s going to be marine gasoil that fills this gap. And recently, in Rotterdam, that’s been running about $250/mt more than the price of high sulfur fuel oil. So the economic basis for the surcharges is clear.

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