The global shipping industry consumes roughly 4 mb/d of bunker fuels, of which high-sulphur marine fuel oil represents an estimated 84% and marine gasoil/diesel most of the remainder. These heavier-sulphur fuel oils have been faulted, by the International Maritime Organisation (IMO) and others, for causing serious air pollution. Such concerns led to the establishment of Emission Control Areas (ECA) in sensitive high-volume shipping waters such as the North Sea, the Baltic Sea and coastal areas off North America. Under IMO rules the sulphur content of burnt shipping fuel must currently not exceed 1% within the ECA. In January 2014, a raft of additional legislative changes were introduced, most notably (from a demand point of view) the widening of the ECA to include the US areas of the Caribbean Sea. This effectively means that ships that pass through waters adjacent to the coasts of Puerto Rico and the US Virgin Islands must also now adhere to tighter ECA emissions controls, potentially lowering the total US fuel oil requirement, in favour of less polluting marine gasoil.

The IEA does not include these US territories in its US50 demand estimates, instead treating this region separately as “US territories”. It is this category that will likely see some additional marine gasoil demand in 2014 at the expense of high-sulphur fuel oil. Last year the US territories consumed roughly 85 kb/d of fuel oil and 70 kb/d of gasoil. Although there are no available estimates of demand from the marine sector, an approximation can be garnered from patterns observed in neighbouring Caribbean countries. Thus in 2014, following the widening of the ECA to include the US Caribbean Sea, fuel oil demand in the US territories region is thought likely to contract by around 5.7%, while the gasoil demand in the US territories is forecast to rise by an estimated 7.3%.

More importantly, in 2015 ECA-wide sulphur limits are due to be further reduced to 0.1%. This new, tighter ECA sulphur limit is expected to result in a sharp upturn in OECD marine gasoil demand, at the expense of marine fuel oil. These numbers have been included within our OECD forecast, hence the relative strength that is demonstrated in the total 4Q14 OECD gasoil growth rate compared to overall OECD demand: OECD 4Q14 gasoil demand rising by 1.6% y-o-y versus a wider forecast increase in total OECD demand of 0.1%.
Source: IEA