Analysts of the World Oil Outlook report by the Organisation of Petroleum of Exporting Countries (OPEC) have predicted that only 70 per cent of ships will be compliant in 2020.
While some have announced plans to use scrubbers or low sulphur fuel oil (LFSO), there are many that have not yet committed to a method of compliance. This is largely due to the uncertainty regarding the availability, price, and compatibility of fuels in a 2020 market. OPEC believes this will result in a 70-75 per cent compliance rate in 2020, with an expected gradual increase towards levels around 90 per cent in 2023, in line with the increasing number of vessels with on-board scrubbing facilities.
Recent announcements for scrubber installations indicate an increased interest in the technology for 2020 compliance, with OPEC predicting around 2,000 vessels to be installed with scrubbers by 2020. OPEC believes that subdued interest for scrubbing facilities prior to this can be explained by the lack of financial incentives as the regulation will not take effect until January 2020.
OPEC expects there will be an oversupply of HSFO in the first few years after 2020 as a result of producing sufficient volumes of middle distillates. This may lead to a discount. Alongside this, LSFO demand will increase in demand as owners opt for 0.5 per cent fuel blends once they have been proven and uncertainties regarding availability and compatibility ease.
In the end of the medium-term environment, OPEC estimates continued interest in scrubbers, leading to between 4,500 and 5,000 installations.
In the medium to long term, several analysts for OPEC see a continued high uptake of scrubbers, which would keep the cost of inter-regional movements at relatively low levels. This would lead to another high demand of HSFO but deter refiners from making major investments to increase 0.5 per cent marine fuel.
Once the industry starts to adapt in the first few years after 2020, it is expected that surplus of HSFO will decrease and there will be no surplus from 2022. Scrubber demand will be highest in 2019 as the regulation nears and again in the first few years after 2020 when surplus HSFO is available as refineries produce it as a result of blending compliant fuels.
However, by 2025 it is expected that the utilisation of coker throughputs to dispose of excessively high heavy residual streams will drop below 80 per cent as the uptake of scrubbers leads to a partial reversal in the demand for HSFO.
In the long term, as bunkering infrastructure for LNG becomes more readily available, OPEC indicates that scrubbers may become obsolete as LNG will be the preferred choice.