INTERVIEW: Ardmore Shipping banks on gasoil for IMO compliance in 2020

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INTERVIEW: Ardmore Shipping banks on gasoil for IMO compliance in 2020

25th June 2018 10:39 GMT

Refined product tanker owner Ardmore Shipping is planning initially to use marine gasoil to comply with stricter sulfur emissions rules in 2020, avoiding the new 0.5% sulfur bunkers and other solutions for now in favour of a more familiar fuel.

The International Maritime Organization’s global sulfur limit for marine fuels will drop from 3.5% to 0.5% at the start of 2020, forcing shipowners either to shift to using cleaner, more expensive fuels or to fit their vessels with scrubber equipment to clean their emissions on board. Most global refiners are currently developing new 0.5% sulfur bunker fuels for use in 2020, but shipowners have raised concerns over whether different blends of the new fuels will be compatible with each other when brought into contact in a single bunker tank.

Ardmore Shipping is at this stage planning to use marine gasoil (MGO) and diesel oil (MDO) instead at first — more familiar and usually 0.1% sulfur products that are currently used while vessels are at port and in stricter emission control areas — Mark Cameron, the company’s chief operating officer, said in an interview with S&P Global Platts on June 21.

“At this point I would probably say we’ll have an initial MGO/MDO strategy until we understand things better,” he said. “We’re very interested in the 0.5% and we believe that will definitely be an option.”

“What we’re currently saying is that, because we’re tramp-trading, we need to know the availability of the 0.5% on a worldwide basis,” he added. “This is the difficult thing to predict right now, as there are a couple of open elements on the 0.5%.”

Ships involved in the tramp trade have no fixed schedule, and trade in the spot market calling at the ports specified by their charterer each time they are booked.

Ardmore purchases its bunkers through shipping company Teekay, and has not yet signed any term contracts for its fuel needs in 2020, Cameron said.

MGO and MDO are currently available at almost every bunkering location worldwide, while it remains unclear where the new 0.5% sulfur fuels will be offered outside of the main hubs. But both types of product may not be available in sufficient quantities to meet the shipping industry’s needs in 2020.

Scrubbers have gained in popularity among some shipowners recently, as more bet that the potential savings from continuing to use fuel oil will quickly outweigh the initial capital cost of installing the equipment. But the nature of Ardmore’s business — its 28 Medium Range products and chemical tankers call at a large number of ports worldwide on a somewhat unpredictable schedule — mean the uncertain availability of high sulfur 380 CST fuel oil makes scrubbers less suitable for its needs, Cameron said.

“Firstly there are concerns about space, and practical considerations to be thought of there,” he said. “There are also questions in our mind about the long-term availability of heavy oil.”

“Depending on the volumes of the world that shift into the 0.5% or the 0.1%, we’re questioning what sort of storage capacity there will be and where suppliers, refiners and producers will be looking to put the 380 CST if they can create a higher yield or a higher earning from another product,” he added. “We think there might actually be a supply issue in the 380 in the longer term.”

Regularly calling at ports where fuel oil is unavailable, and being forced unnecessarily to buy a cleaner, more expensive fuel, would limit the profitability of installing a scrubber. And while there is expected to be a large global surplus of fuel oil in 2020, it remains unclear to what extent suppliers in the smaller ports will bother to keep the product in stock for a much smaller potential customer base.

Ardmore is also concerned that vessels fitted with scrubbers for sulfur removal may not be compliant with nitrogen emission standards, Cameron said.

The average age of the company’s vessels is under five years, so Ardmore is not seeking to use likely market disruption in the run-up to 2020 as an opportunity to renew its fleet, Cameron said. The newer vessels the company has built have eco-friendly designs, and Ardmore has modified some of the older vessels it has bought second-hand to improve their fuel efficiency.

“I think everybody should be looking at fuel consumption for a multitude of reasons — not least of which is cost of course, but every ton of fuel that you save has a carbon-emission equation that you save as well,” Cameron said.

Ardmore is not certain that tanker owners will be adequately compensated for the rise in their fuel bills in 2020, Cameron said.

“Particularly in the tramping tanker side, we believe there will be some adjustment,” he said.

But overall the company sees the change as a positive for its business as there will be increased demand to ship refined products to their biggest markets.

“We do feel that 2020 will offer a great opportunity for the product tanker sector in particular, given product dislocation,” he said. “We see 2020 having a net positive effect for product tankers.”

Jack Jordan, 25th June 2018 10:39 GMT

Article originally published on 25th June 2018 by S&P Global Platts Bunkerworld.