Rising prices show tighter supplies of cleaner fuel for global shipping

A worker walks past a ship at the Red Sea port of Hodeidah in Yemen. (Reuters)
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Updated 11 January 2020

Rising prices show tighter supplies of cleaner fuel for global shipping

NEW YORK: The price of very low-sulfur fuel oil has risen in recent months, a sign of increasing worry there is not enough of the fuel to comply with new global shipping laws that took effect this year, market participants said.
Very low-sulfur fuel oil (VLSFO) lately has started to trade at levels comparable to marine gasoil, a type of diesel fuel used by tankers. That is an indication that refineries may need to increase production of VLSFO as tankers shift from dirtier, high-sulfur fuel to a cleaner product to comply with International Maritime Organization regulations designed to reduce smog.
Under those rules, shippers either need to use fuels with a sulfur content not exceeding 0.5 percent, or install scrubbers that can clean higher-sulfur fuels to reduce emissions. The rules, known as IMO 2020, affect more than 50,000 merchant ships worldwide.
Supply has tightened in trading markets in Asia and Europe and now in the US. On Wednesday VLSFO in Houston traded at $642 per ton, compared with $667 per ton for marine gasoil, S&P Global Platts data showed. That $25 spread was at $152 half a year ago. That suggests not enough VLSFO is being produced and raises concerns about supply this coming spring when refiners go into maintenance season, said Rick Joswick, head of oil pricing and trade flow analytics at S&P Global Platts in New York.
The spread in Singapore has narrowed to $15, while in Rotterdam it has narrowed to $3, S&P Global Platts data showed.
Meanwhile, VLSFO stocks are also falling, Joswick said.
“You can’t cover demand out of inventory forever,” he said. “Production has to pick up and trade flows have to shift.”
“It means marine gasoil needs to be called upon to cover some of that demand,” Joswick added.
The spread between VLSFO and high-sulfur fuel used by shippers that installed scrubbers was $330 per ton in Singapore and $272 per ton in Houston, S&P Global Platts data showed. That spread was greater than shipowners expected, benefiting tanker operators that installed scrubbers, shipping sources said.
VLSFO demand could prompt refiners to increase supplies later this year, said Andy Lipow, president of Lipow Oil Associates in Houston. “This is a nice, high price for VLSFO. We’ll reach some new equilibrium,” he said.

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Scrubbers

Scrubbers are used to clean higher-sulfur fuels on ships to reduce emissions.


Big oil feels the heat on climate

Updated 22 January 2020

Big oil feels the heat on climate

  • Trump singles out ‘prophets of doom’ for attack as industry leader promises global forum: ‘We will be different’
  • Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal

LONDON: Teenage environmental activist Greta Thunberg slammed inaction over climate change as the global oil industry found itself under intense scrutiny on the opening day of the World Economic Forum in Davos.

The teenage campaigner went head to head with US President Donald Trump, who dismissed climate “prophets of doom” in his speech.
She in turn shrugged off the US president’s pledge to join the economic forum’s initiative to plant 1 trillion trees to help capture carbon dioxide.
“Planting trees is good, of course, but it’s nowhere near enough,” Thunberg said. “It cannot replace mitigation. We need to start listening to the science and treat this crisis with the importance it deserves,” the 17-year-old said.
The 50th meeting of the World Economic Forum was dominated by the global threat posed by climate change and the carbon economy.
The environmental focus of Davos 2020 caps a year when carbon emissions from fossil fuels hit a record high, and the devastating effects of bushfires in Australia and other climate disasters dominated the news.
Oil company executives from the Gulf and elsewhere are in the spotlight at this year’s Davos meeting as they come under increased pressure to demonstrate how they are reducing their carbon footprint.
“We are not only fighting for our industry’s life but fighting for people to understand the things that we are doing,” said Vicki Hollub, CEO of Occidental, the US-based oil giant with extensive oil operations in the Gulf. “As an industry when we could be different — we will be different.”

‘Planting trees is good, but nowhere near enough,’ activist Greta Thunberg told Davos. (Shutterstock)

She said the company was getting close to being able to sequester significant volumes of CO2 in the US Permian Basin, the heartland of the American shale oil industry which is increasingly in competition with the conventional oil producers of the Arabian Gulf.
“The Permian Basin has the capacity to store 150 gigatons of CO2. That would be 28 years of emissions in the US. That’s the prize for us and that’s the opportunity. People say if you’re sequestering in an oil reservoir then you are producing more oil, but the reality is that it takes more CO2 to inject into a reservoir than the barrel of oil that it makes come out,” Hollub said.
The challenge Occidental and other oil companies face is to make investors understand what is happening in this area of carbon sequesteration, she added.
The investment community at Davos is also looking hard at the oil industry in the face of mounting investor concerns.
Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal. It accused some of these groups of failing to live up to the World Economic Forum goal of “improving the state of the world.”