Challenges and Prospects of International Marine Bunker Fuels Demand

Abstract

The international marine bunker demand faces many challenges with regard to regulation on fuel quality by the International Maritime Organization (IMO). This paper reviews the most recent challenges and evolutions related to fuel demand and development in international maritime transportation. By developing a simple recursive econometric model, the future demand is forecast under the no-policy change scenario. In the alternative scenario, the impacts of Annex VI of IMO's marine pollution convention on spread price between the high-sulphur and low-sulphur fuel oil are elaborated, and eventually, the impacts on future bunker demand are evaluated. The low price elasticity of bunker demand confirms minimal impacts on demand albeit considerable impacts on running cost of vessels. Bunker demand elasticity with regard to international maritime transportation is estimated at 0.55, showing that inevitable international transportation requirement is the key driver for bunker demand. Implementation of Annex VI would certainly change the mixture of bunker fuel, which mainly depends on the penetration of SO scrubbers on-board of vessels and/or fuel switching. However, due to discrepancy in the level of fuel consumption and uncertain mixture of bunker fuels in the future, the refinery sector and the international maritime transportation sector would face huge uncertainties.