The shipping sector connected with the oil and gas industry is in for an interesting year in 2019.
Crude oil production cuts from OPEC and its Russia-led non-OPEC partners are expected to reduce supply from this group of allies who are trying to bring the market back to balance by deliberately withholding oil exports. This would diminish crude tanker shipping from OPEC countries to some overseas destinations such as the United States. OPEC, and its leading producer and exporter Saudi Arabia in particular, have started to deliberately reduce oil shipments to the US in recent weeks, because US crude oil and oil product inventories are the most transparently reported stockpiles in the world. On the other hand, US crude oil exports have increased considerably over the past year, as US oil production from the main shale fields—led by the Permian—has been breaking records.
Trade in liquefied natural gas (LNG) will also be closely watched by analysts in 2019. The shale gas production surge in the United States is expected to lead to more LNG export terminals being approved and built in coming years.
According to the US Energy Information Administration (EIA), America’s LNG export capacity will more than double by the end of 2019. The US agency expects that US liquefied natural gas export capacity will reach 8.9 billion cubic feet per day (Bcf/d) by the end of this year, making it the third-largest in the world behind Australia and Qatar.
The United States launched LNG exports in February 2016, when the Sabine Pass liquefaction terminal in Louisiana shipped its first cargo. Since then, Sabine Pass has expanded from one to four operating liquefaction trains, and the Cove Point LNG export facility in Maryland has started operations. Two more trains—Sabine Pass Train 5 and Corpus Christi LNG Train 1—began LNG production in 2018, several months ahead of schedule. Cameron LNG in Louisiana, Freeport LNG in Texas, and the Elba Island LNG facility near Savannah, Georgia, are expected to be placed into service in 2019.
“Four additional export terminals—Magnolia LNG, Delfin LNG, Lake Charles, Golden Pass—and the sixth train at Sabine Pass have been approved by both the U.S. Federal Regulatory Commission and the U.S. Department of Energy, and they are expected to make final investment decisions in the coming months,” the EIA said in December 2018.
At the start of this year, the mood on the LNG market is mixed, Wood Mackenzie said in early January.
There are six key themes to watch in the global gas and LNG market this year, according to the energy consultancy. These are expectations of falling gas prices, as Asian LNG demand growth will not keep pace with supply; a possible record year for LNG project sanctions; a potential economic downturn that would weigh on demand and further pressure prices downward; Chinese LNG demand growth slowing down; declining coal usage; and the Gazprom-Ukraine transit gas contract expiring at the end of 2019.
Also in 2019, analysts expect changes in the global refining business and margins, ahead of the new regulations on limiting sulphur content in ship fuels as of 2020.
The International Maritime Organisation (IMO) has set January 1, 2020 as the starting date from which only low-sulphur fuel oil will be allowed to be used for ships. So shippers are exploring various options to comply with the new sulphur-limiting rules. One is to use Ultra Low Sulphur Fuel Oil (ULSFO) or marine gas oil (MGO). Another option is to install the so-called scrubbers—systems that remove sulphur from exhaust gas emitted by bunkers.
Whichever way ship owners and shipping companies decide to adopt to comply with the new rules, the regulation will impact the crude processing of many refiners around the world and the market shares of low-sulphur fuel oil (LSFO) and high-sulphur fuel oil (HSFO). Asia’s market for fuel oil is expected to see important shifts in demand and the share of various fuels starting from the third quarter of 2019, industry sources tell S&P Global Platts.
While global bunker fuel demand is forecast steady this year compared to 2018, the share of the various fuels will considerably differ in 2019 just ahead of the new regulation, but market participants and analysts are not certain yet which fuel how much market share will have. Last year, the share of HSFO is estimated to have been at 60-70 percent of the total, MGO had 20 percent, while LSFO and LNG made up the remainder. After 2020, HSFO will still be allowed for use on ships which will have installed scrubbers. According to Platts, some 15 percent of global bunker fuel demand could still be HSFO after 2020, but it’s not yet clear how much market share the other fuels would have.
According to shipping industry association BIMCO, the distribution of IMO 2020-compliant fuels could be a positive drive for the oil-product tanker market in 2019.
“To what extent this will boost the market depends highly on actual availability and production of fuels from the global refineries,” says Peter Sand, Chief Shipping Analyst at BIMCO.
The association is slightly more positive in its 2019 outlook for oil-product tankers compared to the crude oil tanker market. Last year, the oil-product market “was bad, but not as bad as the crude-oil tanker market,” BIMCO says, noting that 2018 was “probably the worst ever” year for the crude oil tanker business. This year could also be a difficult one for the crude oil shipping sector, as the U.S. sanctions on Iran impact not only the global oil market and prices but also crude oil tanker trade lanes, according to the association.