World Bunkering > News > Autumn 2011 > Duel fuel

Fred Doll is certainly no novice when it comes to analysing trends in the shipping markets .

Before setting up Doll Shipping Consultancy in November 1999 he managed the consultancy business at H Clarkson from 1997 to 1999, and was appointed to the Board in July 1998. Unlike many analysts, Doll has seagoing experience. A graduate of the State University of New York Maritime College with a BSc (Hons) in Marine Transportation, he sailed with Exxon Shipping Co. (now SeaRiver Maritime) from 1979 to 1986, gaining his Chief Mate’s licence.

He spent a four-year sabbatical in Florence as a freelance writer and translator before being invited to rejoin Exxon. From 1990 until joining Clarkson, he worked with Exxon Company, International in New Jersey in several different capacities, analysing shipping projects, charters and sales; working with the Sumed pipeline; and developing shipping industry analyses.

Aside from his other interests, Doll is much in demand at shipping conferences, not least for his willingness to analyse the markets going forward, a willingness that many commentators do not share. Commenting on overall market conditions, global supply trends for bunkers as regards supplies of both high and lowsulphur fuels, Doll suggests that there may be short-term supply concerns, “but the short-term problems may not necessarily be related to long-term supply factors in the market”.

According to Doll “in the short run at least the 1% emission control area fuel we have been dealing with so far and the 3.5% sulphur cap we are going to be looking at in January 2012, you can really handle through existing refining plant where you are using lighter crudes, optimising crude slates or maybe doing some blending. Those sort of things are being accommodated within the current system without major refining investments. As we start moving into 2015, if we have to burn 0.1% sulphur fuel in the emission control area the only way to do that is to take hydrotreated middle distillate fuel, so we are basically talking about gas oil at that point”.

Gas oils will have to go through rigorous hydrotreating, he says. If investment in hydrotreating is needed, competition with land-based alternatives may be on the cards. As far as the bigger picture is concerned, Doll says the European refining industry is already not making money. “They are under severe economic pressure right now and we already have refineries that are closing. You are taking an industry that is already under pressure and not making money, and introducing a new investment requirement.”

Imports from the Middle East, for example, might be an alternative. “If that is the case then prices have to increase in some fashion. You either need higher prices, or greater imports or local investment. Essentially somebody is going to have to make the investments to provide these fuels.”

In order to make such investments, prices are going to have to increase, he says and “peoples’ expectations of prices are going to have to increase”. Investment needs to begin before 2015, or there will be shortages and prices will go up in response to them. Doll says that investment does not seem to be happening in Europe, although there is some investment in the US “but that’s probably being driven to supply local demand”.

The introduction of the emission control area in the US will also provide its own challenges, he says. Refining projects are taking place in Asia and the Middle East. “Perhaps the investments are being undertaken there, but what will have to happen is that prices reach a sufficient level to attract the products from those refiners into Europe.”

Seagoing transport is the most environmentally efficient way to transport goods, and one concern is that, in the interests of increasing environmental quality, shipping becomes more expensive and more use is made of road transport. Doll says that he mentioned this issue to an EU official who said he did not believe that there would be modal shift because fuel costs for land transport would also rise.

Aside from refinery investments, higher volumes of distillate fuel will also be needed “which again will require increasing conversion of heavier portions of the crude fraction in order to get the lighter fuels out of it”. This would also require energy and CO2 emissions on land. Doll says he has not seen a “complete well to exhaust pipe comparison of the different alternatives”.

Commenting on signs that some bunker companies are reducing their credit terms, Doll says that there are large bunker companies that offer an entirely bundled service of price hedging, financial credit availability and the like. Then there are smaller companies who basically sell the oil. “To the extent that the smaller companies reduce their credit terms they tend to enlarge the competitive advantage of the larger companies that offer bundled credit, hedging and other products.” Whether that means people would switch suppliers or not is a question to be asked.

As far as the major challenges facing bunker traders and suppliers are concerned, Doll says regulatory changes are likely to cause difficulties for certain people “especially if it turns out that the sourcing changes in a major way. If it turns out that European refiners are constrained on gas oil and selling most of it in the land-based market and the sourcing is coming from other regions, then clearly that would be a fairly big challenge for bunker suppliers”.

Some suggest that bunker supplies from large ports like Singapore and Fujairah may be affected in the future as the sulphur content of the unrefined product is much higher than elsewhere. According to Doll there is going to have to be a complete change anyway. Getting down to the required 0.5% will be a bigger challenge for ports like Singapore and Fujairah, he believes, but they are probably going to need distillate fuel or a distillate residual fuel mix anyway to meet the 0.5% sulphur cap. “It is still a major change they will have anyway, and hopefully they are closer to regions that will have some excess capacity to meet these requirements.”

If use of scrubbing technology to solve the problem is developed and operators can continue to use heavy fuel oil, the HFO price is likely to rise in the future: “The economic value of the technology is just going to be based on what the perceived differential between low-sulphur and high-sulphur fuel is, and if it is more than that the scrubber will have been a good buy and if it is less than that, it won’t.”

If it turns out that it is possible to use the high-sulphur fuel the price will go up and the correlation with the price of crude would remain strong, he says. If scrubbing technology does not work and distillate fuel is needed, then high sulphur fuel would essentially become refinery feedstock, but, Doll says: would still have a value in some way connected to the value of crude oil. What is certain is a lot will be riding on timely investment in scrubbing technology in predicting fuel price changes in the future.