IMO 2020 set to boost Fujairah's bunker industry
Emirate's proximity to key producers will improve position on price among world's bunker hubs
A century after the shipping industry moved from coal to oil as its primary energy source, another change on the same scale is now under way - one prompted this time by a change in environmental regulations. The shift could provide a significant boost to the status of the UAE's East Coast Port of Fujairah as a global oil hub.
The London-based UN body, the International Maritime Organisation (IMO), has toughened its rules on marine fuel emissions, setting a global sulphur content limit of 0.5 percent to come into effect from January 1, 2020. At present, most of the shipping industry burns high-sulphur fuel oil, a dense, dirty refinery by-product, as its main fuel, but these new regulations will force most to shift to new 0.5 per cent sulphur blends that more closely resemble diesel.
The current situation puts Fujairah at a price disadvantage compared with other bunker ports. The bulk of the world's high-sulphur fuel oil is made in the older, less complex refineries of Russia and Europe, and prices are more competitive at ports closer to those production locations.
But the more complex refining industries of the Middle East and Asia-Pacific, with a high yield of middle distillates, will be better placed to produce blending components for 0.5 per cent sulphur fuels. Fujairah's proximity to these producers will improve its position on price among the world's bunker hubs.
At a local level, production of the new 0.5 per cent sulphur fuels is being developed quickly. Since 2017, Uniper Energy Fujairah has run a topping refinery at the port with a marine fuels production capacity now reaching 3.6 million mt/year, including low-sulphur fuels. The oil storage company Brooge Petroleum and Gas Investment is set to build a 24,000 bpd unit to produce 0.5 per cent sulphur bunker fuel as the first phase of its plans for a 250,000 bpd refining complex in Fujairah in conjunction with Sahara Energy Resources.
The impact of IMO 2020 is already being felt in Fujairah's oil storage terminals. Heavy fuel oil stocks at the Middle Eastern hub have almost doubled from their level at the end of 2018 to 12,265 million barrels by December 12, according to data from the Fujairah Oil Industry Zone (FOIZ). Middle distillate inventories are also on the rise, gaining more than 150 per cent over the same period.
All commercial terminal operators in Fujairah participate in the weekly stock reporting at the request of FOIZ, the Middle East's largest commercial storage facility for refined products. A total of 11 terminals participate, including storage volumes involved in activities such as blending and refining.
The next step for terminal operators will be to determine how much fuel oil storage is still needed as shipping moves on to cleaner fuels. A small number of shipowners have chosen to install emissions-cleaning scrubber systems on board their vessels to allow them to continue burning high-sulphur fuels - estimated by S&P Global Platts Analytics at about 2,400 ships out of the global commercial fleet of 80,000.
These buyers will still want fuel oil to be available at all of the major bunkering hubs, but represent a small niche in the market. Some power generation providers, notably in Saudi Arabia, will also be seeking to take advantage of low fuel oil prices to make greater use of their oil-fired generation capacity. In general, however, the market will be looking for more storage of cleaner products from the middle distillates range.
Looking beyond 2020, Fujairah will need to look at developing a supply chain for alternative fuels if it is to maintain its status among the world's top bunkering ports. The IMO has set a target of 50 percent cuts to shipping's greenhouse gas emissions from the 2008 levels by 2050. This is unlikely to be compatible with oil remaining the predominant bunker fuel.
In the next few years the industry is likely to see a series of arguments between the proponents of LNG, methanol, hydrogen, ammonia and other alternatives about which is best suited to driving shipping's energy transition. Those ports that move first in preparing to deliver these newer fuels will have the most to gain from the changes to come over the coming decades.
The writer is editorial lead at Bunker News for S&P Global Platts. Views expressed in this article are not those of Wam.
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