2020 Marine Gasoil Demand To Top Expectations

It's officially crunch time the IMO 2020 rule comes into force in less than two months. Yet even today, no one actually knows what mix of fuel the world's shipping industry will consume.

The ultimate mix will affect the cost of ocean transport, the demand for different types of tankers, the economics of exhaust-gas scrubbers, the bottom lines of public ship owners, and the competition for refining capacity between marine fuel and diesel.

Starting Jan. 1, vessels with scrubbers can continue to consume cheaper 3.5% sulfur high-sulfur fuel oil (HSFO), but those without such systems must burn either 0.5% sulfur fuel known as very low sulfur fuel oil (VLSFO) or 0.1% sulfur marine gasoil (MGO).

Since MGO is more expensive than VLSFO, scrubber economics will improve to the extent shipping opts for MGO over VLSFO. As the premium versus HSFO increases, the payback period for scrubber investments will shorten.

More broadly, the greater the proportion of MGO used in the overall marine-fuel mix, the more expensive ocean transport will become and the more marine-fuel demand will compete with diesel consumed by trucking and other land-based transport. MGO is a middle distillate like diesel, and VLSFO is only partially comprised of middle distillates.

Anthony Gurnee, CEO of product-tanker owner Ardmore Shipping (NYSE: ASC), maintained during a conference call with analysts on Nov. 5 that the pendulum has just swung more toward MGO and away from VLSFO.

Unexpected Transition Timing

One factor tha....

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