The International

Bunker Industry

Association

Capt Peter W Hall

What lies ahead?

10

What lies ahead?

• Decision time

• Change

• Paradigm shift for marine fuels

• We are sailing into unchartered waters

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10

It is not the strongest.It is not the most intelligent.But it is the most responsive (adaptable),that will survive.

Charles Darwin:

Paradigm shift for Marine Fuel?

• Decision time is upon us.

• Economy is growing - slowly

• There is an over supply of shipping

Consequently low charter rates, freight rates, and demand

• Macro drivers changing, Panama canal, Suez, logistic train changes.

• Low oil prices are changing patterns.

• Multiple fuel options for owners/charterers to decide.

• Uncertainty for refiners, challenge for fuel suppliers.

• Time is ticking for decisive, decisions.

• Compliance strategy emerging?

• Regulation and enforcement is inconsistent.

Is this doom and gloom or an opportunity to position for a boom?

Our course was set by key drivers

10

Trade and Operational

costs

Price and Energy

demand

Legislation

Legislation

• Global Cap reports to IMO?

• MRV reporting EU

• CO2 management?

10

Draft report

submitted to

Steering

Committee (SC)

May 2016

One month delay

for rework on SC

suggestions

June 16

Contractor

reports on

availability of

0.50% in 2020

with assumptions

SC as the “Group

of Experts”

reports to

MEPC 70

MEPC 70

decides

In Oct 2016

Implement Global

Cap (GC) in

2020

Implement Global

Cap (GC) in

2025

Refer to

MEPC 71

Mid 2017

No changes to

Annex VI

Formally

announced with

little or no chance

of it changing

Industry starts

planning

accordingly

Nov 2016

No changes to

Annex VI

Formally

announced with

little or no chance

of it changing

Industry starts

planning

accordingly

Mid 2017

Possible changes

to Annex VI

Dates

Areas

Sulphur

Industry starts

planning

accordingly

Late 2017

MEPC 71

decides

2020 or 2025

MEPC 71

Considers

additional review

MEPC 72

Review of

2020/2025 or

otherMid 2017

7

Monitoring, Reporting and Verification (MRV) regulations

10

• Regulations

MRV applies to all commercial ships

over 5,000 GT from beginning of

2018 leavingor entering an EU port

Each vessel is to report on each voyage

and submit annual summaries that must

be

validated by third parties

• Voyage reports to contain

Arrival port, date and time and departure

date and time

Fuel consumed and hence CO2 emitted

during last voyage

Distance travelled

Time at sea

Cargo carried/work done

Annual reports

Will summarise this data with a compulsory

verification process for each vessel for each

year

Monitoring, Reporting and Verification (MRV) regulations

10

• Implementation Schedule From 1/ 1/2018 voyage reporting leading to

annual reporting

From 2019 submit annual report by end of April

each year

From end June 2019 all vessels entering EU

ports to carry valid compliance documentation

From end June 2019 EU will publically report

each ship’s annual reports

• Penalties for non compliance The penalties shall be effective, proportionate

and dissuasive

Failure to report in twoconsecutive periods

can result in an expulsion order banning the

ship from EU ports until the vessel’s reports

are up to date

• IMO will eventually implement similar regulation

globally, leading to Market BasedMeasures

Price and Energy demand

10

• Introducing the cap in 2020 increase distillate demand by 132 million tons

• but decreases residual demand by 130 million tons

Million Tons

Source: MECL 12

Assumes 20% non-compliance

Equivalent to 60 million tons

Global cap in 2020

At 100% compliance unlikely to be sufficient 0.50% bunkers in 2020• Refinery expansions to be commissioned between 2015 and 2020 were planned

some five years ago, since then Distillate demand has not been as high as expected Completion slippage has not been significant particularly in Asia and ME But continuing tightening in inland sulphur specifications

• Rate of reduction in residual consumption has not accelerated

• Refiners may be able to produce sufficient 0.50% bunkers but not find a market for the residual products

• Even with an announcement in 2016 it is unlikely that there will be adequate time to implement the predominantly smaller scale projects Refiners shortage of funds Ship owners’ lack funds Uncertainty as so how fast the take up of scrubbing will be Future levels of compliance

• The distillate and residual balances to meet the global cap in 2020 will be tight

20 European Scene

14

I

20European Scene impact of closures

on Diesel

15

I

Scrubbers

• Capex

• Opex

• Challenges with

scrubbed waste

disposal

• Turn on turn off

system to meet global

requirements.

• Could benefit from

lower HFO prices.

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1. ExxonMobil HDME 50

2. ExxonMobil AFME 200

3. BP HCRO

4. Lukoil Eco

5. Cepsa Diesel Oil

6. Bominflot IF 30

7. Gazprom Marine Bunker

8. Neste DMB

9. BP

10. Shell ULSFO

11. Phillips 66

12. Caltex, HFO 380 cSt

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Hydro - processed VGO*

Sulphur reduced residue

Hydrocracker recycle oil*

Marine Fuel High visc DMB

DMB

RMB

DMB

DMB

RMA

Heavy Blended Diesel

DMB

LSFO

• Usage issues

•Compatibility when blended with residuals, distillates and other

hybrids•Cold flow•Stability

•ISO spec

• Discounts on LSMGO range from $15 to $100

Emergence of “Hybrid Fuels”

LNG

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LNG

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LNG Growth

0

50

100

150Tugboat

Tanker

Offshore patrol vessel

Ferry

Cargo vessel

Barge

40

250

At the end of 2015 the fleet was 107 vessels with 96 on order

200

Practically all these vessels are duel fuelled

MethaneEthaneMethanolLPGHydrogenBatteryRenewablesDual variations

Choices

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Trade and Shipping

22

Global Fleet and Bunker Demand

• Global bunker fuel demand has slowed down markedly over the last years due to various factors:

– Legislation changes

– Slowdown in global trade

– Overcapacity in global vessel fleet

– Increasing fuel efficiency

– Slow steaming

• Growing fleet surplus due to bulge in new fleet deliveries from post 2004 new investments – coinciding with economic downturn.

• Global fleet capacity is currently nearly double 2004 level.

• Fleet capacity is set to continue growing faster than trade through next few years.

• This will further encourage slow steaming for existing fleet

80

100

120

140

160

180

200

220

240

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International Shipping Industry Indicators (1999=100)

Seaborne trade

World Fleet Capacity

GDP

Slow steaming started 2008, when incremental

fleet capacity started exceeding trade growth

-90

-60

-30

0

30

60

90

120

150

180

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95

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14

Yearly Global Fleet Capacity Change

Delivered

Scrapped

Net

DW

T

Source: Outlook for Marine Bunkers & Fuel Oil -2035 (FGE/Marine & Energy Consulting)

Orders for container ships

10

Physical growth

10

Trade Flows

10

90% of all goods are shipped by sea

Shipping is here to stay.

Shipping is innovative, but conservative.

Information is key.

Location is key.

Let IBIA help unlock the

Opportunity.

Conclusion

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• Adaptation and Innovation

• The industry is changing - the speed of this process is dictated by

– Policy decision– Market forces– Pricing

– IMO decision will be the start of a paradigm shift– Opportunity knocks?– Competitive advantage? First adopter or ?

– Information is key and IBIA remains committed to providing this information.