With the implementation of the IMO 2020 three months away, shipbuilders, refiners and steelmakers are scrambling to benefit from the regulatory change in vessel fuel. The International Maritime Organization (IMO) will lower the sulfur cap for vessel fuel from the present 3.5 percent to 0.5 percent from Jan. 1 2020.
Global shipping firms will respond to the new regulation by using low sulfur fuel oil or exhaust gas cleaning systems, commonly known as scrubbers, for the time being, according to related industry sources on Sept. 23. They are expected to introduce liquefied natural gas (LNG)-fueled vessels in the long term. As the number of new orders for LNG-powered ships has increased, a big market is being created for shipbuilding, oil refining and steel companies.
Currently, all vessels around the world use 5 million barrels of fuel a day on average. Bunker C oil accounts for 70 percent of the total at 3.50 million barrels. However, the consumption of bunker C oil will decrease to 1.40 million barrels and demand for low sulfur oil will grow when the IMO 2020 takes effect.
Oil refining companies are targeting smaller shipping companies and those who have not installed scrubbers in their ships yet. SK Trading International Co., the oil trading subsidiary of SK Innovation Co., has already signed an agreement with a great number of shippers to supply very low sulfur fuel oil (VLSFO) for six months from the fourth quarter of this year to the first quarter of next year. In particular, there has been an increasing preference for VLSFO, which is cheaper than marine gas oil (MGO) for ships as concern over the quality has lessened. Demand for VLSFO from South Korean medium-sized shipping firms is also on the rise.
The shipbuilding and steel industries are targeting the scrubber market, while the oil refining industry is aiming at the VLSFO market. Hyundai Heavy Industries Power Systems Co., which has its own scrubber development technology, has won US$280 million (334.60 billion won) worth of orders for scrubbers for 169 vessels until now from August last year.
POSCO Group formed a task force consisting of experts in sales, production and research and development last year and has been supplying high alloy stainless steel for scrubbers to domestic companies since earlier this year. Hyundai Merchant Marine Co. is planning to complete the installation of scrubbers in 60 to 70 percent of its vessels by the end of the first half of next year. The news also came out in February this year that Maersk, the world's largest container shipping company, has increased the costs for scrubber installation to US$263 million (314.29 billion won). Previously, Maersk allocated US$80 million (95.60 billion won) for scrubber installation.
However, both low sulfur oil and scrubbers are not considered as an alternative for the long term. Park Moo-hyun, an analyst at Hana Financial Investment Corp., said, “Vessels that use low sulfur oil can have an engine failure, and scrubbers will die out in the long term as they are banned in the seacoast in China and the United States. LNG-fueled ships are the only alternative to avoid the environmental regulation.”
This is why the shipbuilding industry is banking on obtaining new orders for LNG-powered vessels. In fact, the number of new orders for LNG-fueled vessels is forecast to increase from 36 in 2020 to 52 in 2025, according to the data from Clarkson Research, a U.K. shipbuilding market analysis agency. Especially, the South Korean shipbuilding industry is set to benefit as it has core technologies of LNG-powered ships.