Medium-Term Outlook for Bunker Fuel

Markets
Rotterdam, May 2016

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The Oil Market Report

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Overview

 Global bunker demand overview

 ECAs: what happened in 2015?
 Towards a global sulphur cap in 2020
 What are the implications on the global product supply
chain?
 Current / future IEA work

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Key assumptions

 Global sulphur cap will be introduced in 2020

 Little uptake of scrubbers pre-2020
 Influenced by narrow fuel oil MGO spreads
 Could result in a last minute logjam

 Many owners happy to pass on increased costs to

customers
 Crude prices to increase moderately by 2021
 Uncertainty over enforcement
 Limited uptake of LNG

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 Global oil balances to gradually
tighten
Global oil balance
102 2.5
100 2.0 Implied Stock
Ch.&Misc to
98 1.5
Bal (RHS)
96 1.0
mb/d

94 0.5

mb/d
Oil Demand
92 0.0
90 -0.5
88 -1.0
Oil Supply
86 -1.5
84 -2.0
82 -2.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

 Balance supports a moderately increasing crude

oil price over the forecast
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Efficiency gains and the encroachment of
LNG to curb future bunker demand

Oil-based marine fuel consumption in international navigation

4.50
4.00
3.50
3.00
mb/d

2.50
2.00
1.50
1.00
0.50
0.00
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

 LNG to account for an additional 0.3 mb/d of

bunker demand by 2021
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 Marine use to remain a relatively
minor component of total demand

Global oil demand

120.00

100.00

Other
80.00
mb/d

60.00
Road
Transport
40.00
Marine Use
20.00

0.00
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

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 2015: Refiners and shippers adapt to
tighter ECA bunker specifications
OECD total residual fuel oil and gasoil demand
16.00
14.00
12.00 Residual Fuel Oil
10.00
mb/d

8.00
6.00
4.00
Gasoil
2.00
0.00
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

 OECD fuel oil demand sank by 0.1 mb/d in 2015 as bunker

fuel specs were tightened in ECAs
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Bunker demand set to undergo
rapid transformation in 2020

Oil-based marine fuel consumption in international navigation by type

4.50
4.00
3.50 Gasoil
3.00
mb/d

2.50
2.00
1.50
1.00 Residual Fuel Oil
0.50
0.00
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

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LNG faces formidable challenges

 Expansion of infrastructure
 Lack of clear international legislation
 Price uncertainty

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Economics of LNG eroded by low
oil prices

Differential between natural gas delivered at UK National Balancing Point and Rotterdam
gasoil and fuel oil barge prices

20

15
Fuel oil
$/MBtu

10

0 Gasoil

-5
Jan-2013 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016

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Marine use set to account for 10%
of global diesel demand in 2021

Global diesel demand

Marine Use Other

 From 3% in 2015
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Global diesel crunch looming

Global diesel balance

31.0

30.0
mb/d

29.0

28.0

27.0

26.0

25.0
2012 2021
Refinery Output Demand

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Asia to become a net middle
distillate importer
Regional middle distillate supply balances in 2015 and 2021

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Fuel oil running out of uses

Global residual fuel oil balance

10.0

9.0

8.0
mb/d

7.0

6.0

5.0

4.0
2012 2021
Refinery Output Demand

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Marine use to account for 25% of
global fuel oil demand in 2021

Global residual fuel oil demand

Marine Use Other

 From 45% in 2015

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Impending global fuel oil surplus
despite Russia cutting output
Regional fuel oil supply balances in 2015 and 2021

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How can changing marine fuel
requirements be met?

 Higher uptake of scrubbers

 Investment from refiners
 Secondary upgrading capacity (visbreakers, crackers, cokers)
 Would see fuel oil move to become more of a feedstock than a product

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Conclusion

 Uncertainty is preventing businesses from taking

efficient decisions
 Biggest question is where sulphur will be stripped out?
 Point of production
 Point of end-use

© OECD/IEA 2015
World Energy Outlook-2016 Special
Report on Energy and Air Pollution
 The role of energy in air quality today – a global assessment by sector,
region and pollutant
 Pollutants & their impacts – an Outlook to 2040 on the basis of existing
and planned energy and environmental policies
 The relevance and impact of a global cap on maritime sulphur
 Short- and long-term solutions by region
 The costs of solving air pollution
 A quantification of the benefits
 A deep dive into cities – governance, technologies and policies
 From analysis to recommendations – an IEA view on how best to
address energy-related air pollution

 Released 27 June

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 Andrew.wilson@iea.org

© OECD/IEA 2015 © OECD/IEA 2015