regulations 2017-2020: compliance challenges and impact on … · 2019-03-15 · ifchor research...
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IFCHOR Research
Regulations 2017-2020: Compliance Challenges and Impact
on Dry Bulk Overcapacity
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1 Marine Money - Geneva Forum, June 2017
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Regulations 2017-2020 Roadmap ……………………………………………………….……………….................
Compliance Challenges Low Sulphur 2020 ……………………………………………………….………………..
Impact on the fleet …………………………………………………………………… Ballast Water Treatment ………………………………………………………………
Impact on the fleet …………………………………………………………………… Conclusion
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2016 2017 2018 2019 2020 2021 2022
U.S. BWM – EIF (Entry in force) Entry in force (EIF) in the U.S. (JAN 2016)
U.S. BWM - Deadline Within next dry dock (2022)
IMO BWM – EIF Entry in force (EIF) globally (SEP 2017) IMO BWM - Deadline
Within IOPP renewal (2022)
TODAY
IMO SOx – EIF Global sulphur emissions capped at 0.5% (JAN 2020)
IMO SOx - Ratification The IMO sets the deadline for Jan 2020 (OCT 2016)
Upcoming Regulations - Roadmap
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Regulations in the 4 years have the potential to re-shape the Dry Bulk market
IMO BWM - Ratification Flag states reach the 35% ratification threshold (SEP 2016)
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MGO / LSF SCRUBBER LNG
COMPLIANCE METHODS - Comparison
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2020
HIGH INVESTMENT UPFRONT NOT “FUTURE-PROOF”
FUEL COST
AVAILABILITY
HIGH INVESTMENT
FUEL AVAILABILITY
ECONOMIC FACTORS
STRUCTURAL CHANGES
ENGINE MODIFICATIONS
COMPLEX RETROFIT
SAFETY
TECHNICAL FACTORS
LSF 2020 – Compliance Challenges
LSF Compliance: a trade-off between high investment and high fuel costs
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SCRUBBER INVESTMENT
FUEL COST
FUEL AVAILABILITY
LSF 2020 – Compliance Challenges
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IEA: Refining capacity to expand across geographies by 2020 and surplus to increase by 1.1 Mio barrels/day by 2020
Global refining capacity Global refining demand
IEA refining activity outlook: 103.4 mbd 90.3 mbd
2017 97 mbd
85 mbd
2020
Source: IMO, IEA Medium-Term Oil Market Report
SCRUBBER INVESTMENT
FUEL COST
FUEL AVAILABILITY
LSF 2020 – Compliance Challenges
IMO projections: MGO demand to increase by 125% to 3.8 Mio barrels/day by 2020
3.8
1.1
0.9 2020
1.7
0.25 3.5
2016 mid distillates
LSFO
HSFO
Unit: millions barrel / day
Official sources indicate that compliant fuels will be sufficiently available by 2020
$183 x ton
$262 x ton
+[VALUE]; $502 x ton
+[VALUE]
-18%; $240 x ton
-12%
0%
2020 2022 TODAY 2019
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MGO = 7% of total gasoil
demand
IFO 380= 75% of total fuel oil demand
Gasoil production and fuel oil supply are positively correlated
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Source: IFO 380 Rotterdam - NYMEX; ICE Gasoil
spread
Gasoil %
IFO 380 %
IMO’s decision triggered a plunge in forward HFO prices and a modest increase in forward gas oil prices
SCRUBBER INVESTMENT
FUEL COST
FUEL AVAILABILITY
LSF 2020 – Compliance Challenges
Future prices point at a $260 / ton spread between Gasoil and IFO 380 in 2020
$475
$300
scrubber
scrubber
Supra 58k debt-free Supra 58k
Fuel spread $260
Freight + premium $14’000
Freight $9’000
opex
opex
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Installing a scrubber can boost the chances to break even
loan
Supra 2 yrs old. Opex: $5000, debt:
$4500/day Scrubber cost: USD 2.8 mln, closed
loop, 5 yrs loan, +2% fuel consumption
Premium: generated by the spread between HFO and LSFO/MGO
Fuel prices and freight rates based on current futures
For a one-off investment the payback period is relatively contained
SCRUBBER INVESTMENT
Source: Baltic Exchange, interviewed clients
FUEL COST
FUEL AVAILABILITY
LSF 2020 – Compliance Challenges
Scrubbers offer positive returns on investment at current IFO-MGO spread
1 year
3 years
<2 years
Fuel spread $190 Historical mean
Fuel spread $260 Current futures
Fuel spread $350 High Scenario
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ECONOMIC DRAWBACKS
BROAD COST RANGE NARROWING COMPETITIVE ADVANTAGE
UNCERTAIN FUTURE COMPLIANCE
HIGHER POWER CONSUMPTION (+2%)
OPERATIONAL DRAWBACKS DOCKING AVAILABILITY
SCRUBBERS AVAILABILITY CHEMICALS / SLUDGE DISPOSAL IMMATURE TECHNOLOGY
+
SCRUBBER INVESTMENT
FUEL COST
FUEL AVAILABILITY
LSF 2020 – Compliance Challenges
High costs and technical risks may limit the adoption of scrubbers
0 yrs
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eco age
+ 15 yrs
Handy and Panamax retain the highest share of uncompetitive tonnage and a higher scrapping potential
LSF 2020 – Impact On The Fleet
14% 20% 17%
22%
2019: 17% of the Dry Bulk tonnage older than 15 yrs and non-eco / fuel inefficient
CAPESIZE
PANAMAX
SUPRAMAX
HANDYSIZE
2019 projections
Source: Seaweb IHS
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Different REGULATIONS
Alternative Management System AMS installed “proof of intent”
IMO
USCG
Implementation at next IOPP certificate
69 types approved
Further extensions…?
Implementation at next scheduled dry dock
4 models approved so far (UV and electrolysis types) Extensions granted:
OPERATIONAL DRAWBACKS
DRY DOCK SPACE AVAILABILITY
COMPLEX RETROFIT EXTENDED LOADING TIME
… Next MEPC in July may push for further extensions, but what about USCG enforcement?
2022 2024
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WBT – Compliance Challenges
WBT: The misalignment between U.S. and IMO regulations could increase
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15-20 >20 15-20 >20 15-20 >20 15-20 >20 15-20 >20 15-20 >20
2017 2018 2019 2020 2021 2022
Mio
DW
T
Fleet over 15 yrs old with s.s. due – tot 63 Mio Dwt
Handysize Supramax Panamax Capesize
Age group Survey due
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The WBT regulation will have a limited impact on the fleet in the near term
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Installation costs at about
$1 Mio for a retrofit on a median bulker
Currently 40 ships carry water ballast treatment systems
Companies may withhold
ships from trading with the U.S. and not comply with USCG WBT regulation
Only 100 bulkers over 20 yrs old (9.5 Mio Dwt) are expected to undergo special survey in the next 2 years
WBT – Impact On The Fleet
3.6
5.8 6.4
5.2
1
Source: Seaweb IHS
0102030405060708090100110120130140150160170180190
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16M
ay-1
6Se
p-16
Jan-
17M
ay-1
7Se
p-17
Jan-
18M
ay-1
8Se
p-18
Jan-
19M
ay-1
9Se
p-19
Jan-
20M
ay-2
0Se
p-20
Over
capa
city -
Mio
Dwt
BDI
BDI
High demand scenario
Low demand scenario
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WBT and LSF regulations are expected to intensify overcapacity reduction only in 2020
2017-2020 – End Of Overcapacity?
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Assumptions: _ projections do not include ordering activity _ average fleet speed is constant at 11.5 knots s.s. _ scrapping acitvity to intensify at the end of 2019 and a negative fleet growth in 2019
Source: Seaweb HIS, IFCHOR Research
2020
LEGAL DISCLAIMER: The information contained in this report has been obtained from diverse sources. IFCHOR S.A. considers such information to be reliable but IFCHOR S.A. does not guarantee its accuracy or completeness. Whilst every care has been taken in the production of the report no liability can be accepted for any loss or damage incurred in any way whatsoever. This report has been produced for the internal use of the intended recipients only and no reproduction is allowed prior the authorization of IFCHOR S.A.
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