1 00:00:08,520 --> 00:00:11,560 Speaker 1: Hey, DNA, Mark, are you looking forward to the new year? 2 00:00:11,760 --> 00:00:13,480 Speaker 1: I try not to think about it is the new 3 00:00:13,560 --> 00:00:16,400 Speaker 1: year as much as my birthday because New Year's Eve 4 00:00:16,480 --> 00:00:19,920 Speaker 1: is my birthday. Yeah, I did know that, but this 5 00:00:20,000 --> 00:00:22,840 Speaker 1: is also the turn of the new decades? So which 6 00:00:22,880 --> 00:00:26,480 Speaker 1: is better your birthday or the turn of the decade. Well, 7 00:00:26,600 --> 00:00:29,160 Speaker 1: I'm going to be on my way back to London 8 00:00:29,600 --> 00:00:32,159 Speaker 1: on my birthday, which means I won't be celebrating New 9 00:00:32,240 --> 00:00:35,080 Speaker 1: Year's Eve. But my mother used to tell me when 10 00:00:35,080 --> 00:00:36,680 Speaker 1: I was a kid, all the fireworks for for me. 11 00:00:36,840 --> 00:00:39,400 Speaker 1: So if we continue to operate under that premise, maybe 12 00:00:39,440 --> 00:00:42,760 Speaker 1: it's a draw. Okay, fine, that works. What are you 13 00:00:42,880 --> 00:00:45,600 Speaker 1: looking forward to about the change of the decade in 14 00:00:45,640 --> 00:00:48,159 Speaker 1: the new year. Well, clearly it's going to be I 15 00:00:48,320 --> 00:00:51,720 Speaker 1: m O when new regulations come into force for the 16 00:00:51,720 --> 00:00:55,840 Speaker 1: global shipping industry. Clearly joining us today in the studio 17 00:00:56,000 --> 00:00:59,480 Speaker 1: is Richard Chatterton, who is our lead oil analysts, and 18 00:00:59,600 --> 00:01:03,160 Speaker 1: Richard's actually based out of our Singapore office. Mark and 19 00:01:03,200 --> 00:01:06,600 Speaker 1: I had a business trip to Singapore last year around 20 00:01:07,040 --> 00:01:09,360 Speaker 1: the New Year. And Mark, what do you remember most 21 00:01:09,440 --> 00:01:14,600 Speaker 1: about Singapore chili crab? Yeah, it was really tasty. Apparently 22 00:01:14,640 --> 00:01:17,240 Speaker 1: it doesn't come from Singapore though, Um, I don't know. 23 00:01:17,280 --> 00:01:19,400 Speaker 1: Maybe maybe a thin from Singapore. They can correct me 24 00:01:19,440 --> 00:01:22,959 Speaker 1: on that, but yeah, tall buildings, I don't know. In 25 00:01:22,959 --> 00:01:26,600 Speaker 1: the Merlin, don't forget the half Mermaid, half Lion. Well, 26 00:01:26,600 --> 00:01:29,880 Speaker 1: the thing I remember most of all about Singapore is 27 00:01:29,920 --> 00:01:32,360 Speaker 1: when you look outside the window and you're flying in, 28 00:01:32,920 --> 00:01:36,000 Speaker 1: you see ships in that bay. More ships and maybe 29 00:01:36,080 --> 00:01:38,399 Speaker 1: I've ever seen anywhere, and I actually grew up in 30 00:01:38,400 --> 00:01:40,520 Speaker 1: northern California. I've seen quite a few ships in San 31 00:01:40,520 --> 00:01:44,880 Speaker 1: Francisco Bay. But Singapore, You've got more ships in one 32 00:01:44,920 --> 00:01:48,000 Speaker 1: bay than I even thought was possible. So it is 33 00:01:48,080 --> 00:01:50,760 Speaker 1: perfect that we have Richard Chatterin joining us today to 34 00:01:50,880 --> 00:01:56,080 Speaker 1: talk about shipping. UH and I am ow we actually 35 00:01:56,120 --> 00:01:59,960 Speaker 1: write a monthly report about im. If you would like 36 00:02:00,160 --> 00:02:02,160 Speaker 1: to read it, you can find it on the Bloomberg 37 00:02:02,240 --> 00:02:05,760 Speaker 1: terminal at b NF, go on bn F dot com, 38 00:02:05,880 --> 00:02:08,640 Speaker 1: or on the b NF mobile app. And if you're 39 00:02:08,639 --> 00:02:11,240 Speaker 1: already turning this podcast off thinking it's about shipping it's 40 00:02:11,240 --> 00:02:13,680 Speaker 1: not for me, well you'll find out pretty quickly that 41 00:02:13,720 --> 00:02:17,359 Speaker 1: this really applies to pretty much every sector. So have 42 00:02:17,360 --> 00:02:20,239 Speaker 1: a listen, stay tuned, and UH, let's jump in with Richard. 43 00:02:20,480 --> 00:02:23,959 Speaker 1: As a reminder, biennyf does not provide investment or strategy advice, 44 00:02:24,000 --> 00:02:25,600 Speaker 1: and you can hear a full disclaimer at the end 45 00:02:25,600 --> 00:02:31,160 Speaker 1: of the show. Now let's jump in with Richard. Hi, 46 00:02:31,240 --> 00:02:33,120 Speaker 1: rich thank you for joining us today. Thank you for 47 00:02:33,160 --> 00:02:37,320 Speaker 1: having me. I am O is a phrase that I 48 00:02:37,360 --> 00:02:40,960 Speaker 1: was not familiar with until this year, but is pretty 49 00:02:41,040 --> 00:02:43,720 Speaker 1: much well anybody can talk about in the shipping industry 50 00:02:43,720 --> 00:02:47,280 Speaker 1: at the moment. Can you please tell us what it is? Well? 51 00:02:47,320 --> 00:02:49,240 Speaker 1: Being an oil analyst, it's pretty much the only thing 52 00:02:49,240 --> 00:02:53,160 Speaker 1: that I've worked on for the past twelve months. Um, 53 00:02:53,200 --> 00:02:57,840 Speaker 1: i'm is the most important regulatory changed to impacts or 54 00:02:57,880 --> 00:03:03,359 Speaker 1: reported markets for decades. It's is creating significant disruption and 55 00:03:03,840 --> 00:03:06,600 Speaker 1: complications for the shipping industry, but it's also a big 56 00:03:06,600 --> 00:03:10,240 Speaker 1: deal for the refining sector. So from the first of 57 00:03:10,320 --> 00:03:17,359 Speaker 1: Jan the sulfur fuel content specification as regulated by the 58 00:03:17,400 --> 00:03:20,960 Speaker 1: International Maritime Organization will fall from three point five per 59 00:03:21,000 --> 00:03:24,560 Speaker 1: cent SUL for contents to zero point content. Now, that 60 00:03:24,680 --> 00:03:27,639 Speaker 1: is a really really big shift to put into context. 61 00:03:28,280 --> 00:03:31,400 Speaker 1: Sulfur has been regulated out of pretty much every other 62 00:03:31,600 --> 00:03:35,120 Speaker 1: sector where oil is used. Why because it's a very 63 00:03:35,200 --> 00:03:40,800 Speaker 1: undesirable pollutant that causes localized devolution in an urban setting. 64 00:03:41,200 --> 00:03:44,320 Speaker 1: If you look at the regulations which which have come 65 00:03:44,320 --> 00:03:47,520 Speaker 1: into force over the past decades to to to reduce 66 00:03:47,600 --> 00:03:52,960 Speaker 1: the sulfur content of road fuels, which were quite significant. 67 00:03:53,240 --> 00:03:55,400 Speaker 1: Um if we go back to the seventies, eighties and 68 00:03:55,840 --> 00:04:00,200 Speaker 1: early nineties, they were causing acid rain. It's it's it's 69 00:04:00,240 --> 00:04:04,000 Speaker 1: really something that's undesirable. So regulators acted to to to 70 00:04:04,120 --> 00:04:07,000 Speaker 1: push down the sulfur content of of road fuels and 71 00:04:07,040 --> 00:04:10,000 Speaker 1: other phosphors which are used in built up areas. What 72 00:04:10,120 --> 00:04:14,520 Speaker 1: this then resulted in Thore is that refiners are faced 73 00:04:14,560 --> 00:04:16,440 Speaker 1: with the problem when you when you look at what's 74 00:04:16,440 --> 00:04:19,480 Speaker 1: in a barrel of oil hydrocarbons, and there's impurity. Is 75 00:04:19,520 --> 00:04:22,600 Speaker 1: one of the key impurities of sulfur um. If you 76 00:04:22,640 --> 00:04:27,320 Speaker 1: push sulfur out of the u of the of the barrel, 77 00:04:27,839 --> 00:04:31,920 Speaker 1: across across diesel, across gasoline, across kerosene um, it ends 78 00:04:31,960 --> 00:04:34,800 Speaker 1: up in the bottom of the barrel, the residual, so 79 00:04:34,880 --> 00:04:39,159 Speaker 1: to speak, which is the main source of supply for 80 00:04:39,200 --> 00:04:42,080 Speaker 1: the for the bunker market for shipping fuels. So what 81 00:04:42,120 --> 00:04:45,560 Speaker 1: you've ended up with is this concentration of sulfur emissions 82 00:04:46,000 --> 00:04:51,719 Speaker 1: from oil essentially accumulating in shipping fuel. Interesting statistic is 83 00:04:51,720 --> 00:04:54,320 Speaker 1: the fifteen of the largest ships actually admit more sulfur 84 00:04:54,360 --> 00:04:56,799 Speaker 1: than all of the world's cars now because the regulation 85 00:04:56,839 --> 00:05:00,240 Speaker 1: around road fuels is so stringent and the and the 86 00:05:00,279 --> 00:05:05,240 Speaker 1: absence of regulation for shipping fuels means that suff emissions 87 00:05:05,279 --> 00:05:07,720 Speaker 1: in the in the ship industry un constraint. So this 88 00:05:07,800 --> 00:05:09,960 Speaker 1: is the first time, from the first chance with the 89 00:05:09,960 --> 00:05:13,400 Speaker 1: first time that sulfur content will be regulated to a 90 00:05:13,440 --> 00:05:17,560 Speaker 1: meaningful degree, and that is causing causing some big challenges. 91 00:05:17,720 --> 00:05:19,920 Speaker 1: But it's been a step change coming for some time, 92 00:05:19,960 --> 00:05:24,680 Speaker 1: hasn't it. It has, but this is the first time 93 00:05:24,720 --> 00:05:27,040 Speaker 1: that it is creating a pain point. This is the 94 00:05:27,080 --> 00:05:31,280 Speaker 1: first time that shipping companies are having to install equipment 95 00:05:31,520 --> 00:05:34,880 Speaker 1: to to comply with with more stringent regulations, and it's 96 00:05:34,880 --> 00:05:36,720 Speaker 1: the first time that the refining system is having to 97 00:05:36,800 --> 00:05:42,279 Speaker 1: significantly reconfigure and having to significantly react to a new standard, 98 00:05:42,320 --> 00:05:48,440 Speaker 1: which which will require a wholesale re engineering of the 99 00:05:48,480 --> 00:05:53,400 Speaker 1: marine fuel supply infrastructure. Um So there are different ways 100 00:05:53,400 --> 00:05:55,440 Speaker 1: that you can comply. From the beginning of the year, 101 00:05:56,080 --> 00:05:58,919 Speaker 1: you can either just buy low sulfur fuels, but you 102 00:05:58,920 --> 00:06:01,239 Speaker 1: can also install a few if you're a vessel operator, 103 00:06:01,360 --> 00:06:04,039 Speaker 1: instead of buying low so for fuel, which may be 104 00:06:04,080 --> 00:06:06,360 Speaker 1: more expensive, you can install a piece of kit on 105 00:06:06,400 --> 00:06:10,839 Speaker 1: your ship to scrub the sulfur emissions from the flu gasses. 106 00:06:11,720 --> 00:06:14,760 Speaker 1: These are these exhaust gas cleaning systems or scrubbers for shorts, 107 00:06:15,440 --> 00:06:18,200 Speaker 1: which costs money. Like maybe it can be it can 108 00:06:18,240 --> 00:06:21,880 Speaker 1: be several million dollars to install one of these things, 109 00:06:22,279 --> 00:06:25,840 Speaker 1: and the challenges that there are only a few companies 110 00:06:26,440 --> 00:06:31,480 Speaker 1: that have the capacity to to install scrubbers. These scrubbers 111 00:06:31,480 --> 00:06:34,480 Speaker 1: have been pretty common placed in the power sector for 112 00:06:34,560 --> 00:06:37,760 Speaker 1: some years now. Are the same companies that installed them? 113 00:06:37,839 --> 00:06:40,719 Speaker 1: There are the same ones that install them on chips um. 114 00:06:40,760 --> 00:06:42,600 Speaker 1: It's a good question. I think that a lot of 115 00:06:42,640 --> 00:06:45,760 Speaker 1: the technology is the same, but the main companies are 116 00:06:45,839 --> 00:06:49,120 Speaker 1: marine technology companies or mean engineering companies, your Apple vowls, 117 00:06:49,160 --> 00:06:52,640 Speaker 1: your what Sillers, your Yarra marine. But there's no doubt 118 00:06:52,720 --> 00:06:55,279 Speaker 1: that they also in a sell into the supply chain 119 00:06:55,320 --> 00:07:00,400 Speaker 1: that that provides similar equipment of stationary stationary application. So 120 00:07:00,760 --> 00:07:02,800 Speaker 1: if I'm a stationary provider, should I see this as 121 00:07:02,800 --> 00:07:05,320 Speaker 1: an opportunity? Well, a lot of people saw this as 122 00:07:05,320 --> 00:07:10,680 Speaker 1: an opportunity for UM, the for the marine engineering companies. 123 00:07:10,920 --> 00:07:12,600 Speaker 1: And we did see sort of in the run up 124 00:07:12,600 --> 00:07:15,200 Speaker 1: to IM or in the run up to the discussions 125 00:07:16,000 --> 00:07:20,440 Speaker 1: maybe last year and early part of you saw significant 126 00:07:20,480 --> 00:07:23,120 Speaker 1: increases in the share prices of some of these companies. 127 00:07:23,160 --> 00:07:26,480 Speaker 1: But the expectations for scrub adoption have actually fallen off 128 00:07:26,520 --> 00:07:28,800 Speaker 1: some what and I'll tell you why. What what you've 129 00:07:28,800 --> 00:07:30,880 Speaker 1: had is is this sort of face off between the 130 00:07:30,920 --> 00:07:35,280 Speaker 1: refining system and the shipping industry as to who acts first. 131 00:07:35,360 --> 00:07:37,760 Speaker 1: It's kind of a bit of a first movie disadvantage, right, 132 00:07:37,760 --> 00:07:41,000 Speaker 1: if you're absolutely if you if if you're if you're 133 00:07:41,000 --> 00:07:44,640 Speaker 1: one of the big vessel operators or shipping companies, if 134 00:07:44,640 --> 00:07:47,200 Speaker 1: you install scrubbers on all your vessels in the expectation 135 00:07:47,320 --> 00:07:50,840 Speaker 1: that UM, you're gonna you're gonna make more money by 136 00:07:50,880 --> 00:07:54,160 Speaker 1: complying that way, I should probably explain the rationale to 137 00:07:54,240 --> 00:07:57,960 Speaker 1: install a scrub on your vessel is because you would 138 00:07:58,000 --> 00:08:00,320 Speaker 1: assume that the high soul for fuel which you will 139 00:08:00,360 --> 00:08:02,920 Speaker 1: then be able to continue burning. Because remember you're scrubbing 140 00:08:02,960 --> 00:08:06,440 Speaker 1: the solfa on your ship. You're so you're still in compliance. 141 00:08:06,480 --> 00:08:09,000 Speaker 1: You're reducing your sulf emissions, but you can still buy 142 00:08:09,040 --> 00:08:12,520 Speaker 1: the high sulfur fuel, which should trade at a discount 143 00:08:12,560 --> 00:08:15,040 Speaker 1: to the compliant fuel which has had to go through 144 00:08:15,560 --> 00:08:19,800 Speaker 1: more extensive refining processes. Um, the gamble that you're making 145 00:08:19,840 --> 00:08:22,800 Speaker 1: is that the multimillion dollar investments to restore the scrubb 146 00:08:22,840 --> 00:08:25,600 Speaker 1: but will be paid off over time by the lower 147 00:08:25,600 --> 00:08:29,400 Speaker 1: fuel costs. All right, So you you're essentially taking a 148 00:08:29,440 --> 00:08:33,000 Speaker 1: bet on the outlook for fuel prices. However, if the 149 00:08:33,240 --> 00:08:37,600 Speaker 1: refining system does one of two things, if they increase 150 00:08:37,679 --> 00:08:41,720 Speaker 1: the supply of compliant fuel to such an extent that 151 00:08:41,760 --> 00:08:44,199 Speaker 1: there isn't really a price spread between high sulf and 152 00:08:44,240 --> 00:08:46,760 Speaker 1: low suff for fuels, then it might not be worth 153 00:08:46,760 --> 00:08:48,600 Speaker 1: it all the scrubbers. But then, on the other hand, 154 00:08:48,960 --> 00:08:51,480 Speaker 1: it just might not be possible to buy high sulfur 155 00:08:51,520 --> 00:08:53,320 Speaker 1: fuel over a period of time. If you think about it. 156 00:08:53,360 --> 00:08:55,760 Speaker 1: You know, in the revual sector, was the last time 157 00:08:55,760 --> 00:08:59,160 Speaker 1: you ever saw leaded petrol for so it gets regulated 158 00:08:59,200 --> 00:09:01,760 Speaker 1: out of the market. Suppliers will you know, will will 159 00:09:01,800 --> 00:09:06,520 Speaker 1: will respond if the market diminishes to certain extent, and 160 00:09:06,559 --> 00:09:09,719 Speaker 1: if they have infrastructure constraints or they only have one 161 00:09:09,800 --> 00:09:12,240 Speaker 1: barge that they can use to rebunk of vessels in 162 00:09:12,280 --> 00:09:15,480 Speaker 1: a particular location. They might just not offer high sulfur 163 00:09:15,760 --> 00:09:18,160 Speaker 1: fuel oil in a particular place, which means it doesn't 164 00:09:18,160 --> 00:09:19,520 Speaker 1: matter if you have your scrubble or not, you're still 165 00:09:19,520 --> 00:09:21,439 Speaker 1: gonna have to pay for the for the compliant fuel. 166 00:09:21,800 --> 00:09:26,079 Speaker 1: So as a result, you've had a kind of very 167 00:09:26,120 --> 00:09:30,280 Speaker 1: slow decision making process from the shipping industry as to 168 00:09:30,600 --> 00:09:34,200 Speaker 1: how many scrubbers were going to install, and we've got 169 00:09:34,200 --> 00:09:36,880 Speaker 1: closer from collection close to the deadline. Earlier this year, 170 00:09:36,920 --> 00:09:38,920 Speaker 1: there were some big estimates that were put out there 171 00:09:38,920 --> 00:09:42,600 Speaker 1: by by other by other analysts, five six thousand scrubbers 172 00:09:42,640 --> 00:09:45,640 Speaker 1: by numbers always been around about three three and a 173 00:09:45,640 --> 00:09:47,080 Speaker 1: half thousands. We think by the end of the year 174 00:09:47,080 --> 00:09:49,000 Speaker 1: of the number will be about three thousands. So that 175 00:09:49,040 --> 00:09:53,040 Speaker 1: means about one in ten large ships will have one intent. 176 00:09:53,360 --> 00:09:56,400 Speaker 1: Ships not the largest ships will one intent. Of the 177 00:09:56,400 --> 00:09:59,320 Speaker 1: marine fleet will have have a scrubber installed. That means 178 00:09:59,360 --> 00:10:01,600 Speaker 1: that there's the st equilibrium that we've got to write 179 00:10:01,600 --> 00:10:04,960 Speaker 1: where companies are sort of hedging their bets. They're installing 180 00:10:05,000 --> 00:10:07,520 Speaker 1: a few scrubbers here, and they're they're gonna they're gonna 181 00:10:07,600 --> 00:10:09,959 Speaker 1: they're gonna buy compliant fuel for the rest of their fleet, 182 00:10:10,280 --> 00:10:12,880 Speaker 1: and what they're um, well, they're What they're essentially going 183 00:10:12,920 --> 00:10:14,400 Speaker 1: to do is wait and see see what happens to 184 00:10:14,440 --> 00:10:16,720 Speaker 1: the price breads. So if you're a Lavello, what Silla 185 00:10:16,800 --> 00:10:18,920 Speaker 1: and you were making, people were making big bets on 186 00:10:18,960 --> 00:10:20,640 Speaker 1: the number of scrubbers that you were going to sell 187 00:10:20,960 --> 00:10:25,120 Speaker 1: over this period of time, you're you've probably been disappointed 188 00:10:25,120 --> 00:10:27,080 Speaker 1: by how this has turned out. But the scrubbers do 189 00:10:27,120 --> 00:10:30,200 Speaker 1: have some advantages, don't they In terms of timelines for 190 00:10:30,280 --> 00:10:36,160 Speaker 1: the actual ships. Scribbers have a number of disadvantages. I 191 00:10:36,160 --> 00:10:39,720 Speaker 1: would say they probably, I think, I think in terms 192 00:10:39,760 --> 00:10:46,479 Speaker 1: of in terms of operational um in terms of operational flexibility, 193 00:10:47,040 --> 00:10:52,840 Speaker 1: scrubbers provide ships with less risks in terms of bunkering operations. 194 00:10:52,880 --> 00:10:57,480 Speaker 1: Because you could argue that in certain places from January one, 195 00:10:57,480 --> 00:11:00,480 Speaker 1: it won't be possible to get a hold of piint fuel. 196 00:11:00,520 --> 00:11:02,160 Speaker 1: We can go into this amite, but I actually don't 197 00:11:02,160 --> 00:11:03,720 Speaker 1: think that's going to be the case. In most major 198 00:11:03,720 --> 00:11:05,760 Speaker 1: bring reports that is going to be availability. But if 199 00:11:05,760 --> 00:11:07,560 Speaker 1: you were worried about that, you could say it installing 200 00:11:07,559 --> 00:11:10,120 Speaker 1: the scrubber means it's less likely that I'll have any 201 00:11:10,200 --> 00:11:13,040 Speaker 1: issues with getting hold of the pliant fuel. But the 202 00:11:13,160 --> 00:11:17,200 Speaker 1: downside is there are operational challenges with having scrub on board. 203 00:11:17,200 --> 00:11:20,320 Speaker 1: It's a complex piece of kit which usually need to have. 204 00:11:20,480 --> 00:11:23,120 Speaker 1: You need to have a certain degree of expertise and 205 00:11:23,520 --> 00:11:26,400 Speaker 1: training for the crew to operate. There are inputs that 206 00:11:26,440 --> 00:11:28,640 Speaker 1: you need to You need to you need to feed 207 00:11:28,720 --> 00:11:31,800 Speaker 1: these things with with re agents, with soda ash lime. 208 00:11:32,920 --> 00:11:36,000 Speaker 1: You also have an issue with wash water and this 209 00:11:36,040 --> 00:11:37,880 Speaker 1: is going to become a bigger issue I think over 210 00:11:37,920 --> 00:11:40,240 Speaker 1: the coming years. There are two types of well, the 211 00:11:40,280 --> 00:11:42,440 Speaker 1: three types of scrubber. There's an open loop scrubber, there's 212 00:11:42,440 --> 00:11:45,599 Speaker 1: a close loop scrubber, and there's a hybrid scrubber. The 213 00:11:46,320 --> 00:11:49,360 Speaker 1: names sort of sort of our self explanatory and openly scruber, 214 00:11:49,360 --> 00:11:52,240 Speaker 1: but it does as it pushes water in through an 215 00:11:52,240 --> 00:11:57,640 Speaker 1: inflow through the flu gasses, dissolves the sult of content 216 00:11:57,720 --> 00:12:01,200 Speaker 1: in the in the exhaust gases, and then it just 217 00:12:01,400 --> 00:12:04,000 Speaker 1: chucks the water out into the sea. A closed loop 218 00:12:04,040 --> 00:12:06,640 Speaker 1: scrubber it's the same process, but you have as a 219 00:12:06,679 --> 00:12:09,640 Speaker 1: self contained closed loop where you have storage tank on 220 00:12:09,679 --> 00:12:14,319 Speaker 1: board and there is no there is no discharge and 221 00:12:14,360 --> 00:12:16,680 Speaker 1: the hybrid allows you to switch between the two. Difficult 222 00:12:16,679 --> 00:12:18,520 Speaker 1: thing about having closed scruber is that aim more expensive 223 00:12:18,520 --> 00:12:20,079 Speaker 1: and be the second more space on the vessel. The 224 00:12:20,080 --> 00:12:22,080 Speaker 1: problem with an open loop scrubber is that it's not 225 00:12:22,200 --> 00:12:25,520 Speaker 1: very nice. It sounds like there's any scrubber eventually, Rightly, 226 00:12:25,600 --> 00:12:28,760 Speaker 1: what you actually want to push towards is compliant fuel, 227 00:12:28,840 --> 00:12:32,120 Speaker 1: right absolutely. I mean, if you're an environmental advocate, well, 228 00:12:32,160 --> 00:12:34,400 Speaker 1: I think I think in terms of the way that 229 00:12:34,800 --> 00:12:36,800 Speaker 1: the regulation has been structured, it's it's been a bit 230 00:12:36,800 --> 00:12:40,200 Speaker 1: of a compromise, because that in prinsible, it should just 231 00:12:40,240 --> 00:12:44,559 Speaker 1: be we're moving to a lower um sour fur specification 232 00:12:45,200 --> 00:12:49,520 Speaker 1: for fuels, let's let's get it done. But the argument 233 00:12:49,640 --> 00:12:52,480 Speaker 1: was we have to give the industry a pathway to adapt, 234 00:12:52,600 --> 00:12:55,880 Speaker 1: a pathway to be able to to to transition to 235 00:12:56,040 --> 00:12:59,360 Speaker 1: that lower spec over time, and scrubbers allow you to 236 00:12:59,360 --> 00:13:03,200 Speaker 1: do that. I think that in terms of the impact 237 00:13:03,240 --> 00:13:05,240 Speaker 1: of our mo we don't want to we don't focus 238 00:13:05,360 --> 00:13:08,240 Speaker 1: too much on scrubbers because they are they are kind 239 00:13:08,240 --> 00:13:12,080 Speaker 1: of a only only only only part of the equation. 240 00:13:12,360 --> 00:13:15,360 Speaker 1: What you have with the economics of scrubbers is really 241 00:13:15,400 --> 00:13:19,840 Speaker 1: a temporary trend. One of these things, like I said, 242 00:13:19,880 --> 00:13:22,160 Speaker 1: costs a few million books, and you're you're betting on 243 00:13:22,200 --> 00:13:24,560 Speaker 1: there being a spread between the price of the high 244 00:13:24,559 --> 00:13:27,120 Speaker 1: sulfur and low sulfur fuels. That spread is now really 245 00:13:27,120 --> 00:13:30,000 Speaker 1: really significant. It's two hundred and fifty per ton. We 246 00:13:30,080 --> 00:13:32,520 Speaker 1: calculated that at a hundred and seventy five to two 247 00:13:32,559 --> 00:13:34,480 Speaker 1: hundred dollars, you can pay back one of these things, 248 00:13:34,520 --> 00:13:37,720 Speaker 1: and under two years two you're you're you're pushing closer 249 00:13:37,760 --> 00:13:41,920 Speaker 1: towards eighteen month payback. So really, you know that that's 250 00:13:42,040 --> 00:13:45,760 Speaker 1: that's that's that's going to probably pay off the three 251 00:13:45,760 --> 00:13:47,560 Speaker 1: thousands that that that are that are that are going 252 00:13:47,600 --> 00:13:48,640 Speaker 1: to be stored by the end of the year. We 253 00:13:48,640 --> 00:13:51,400 Speaker 1: think around about three thousand, seven hundred thousand, eight hundred 254 00:13:51,600 --> 00:13:55,560 Speaker 1: are going to be installed in total over the next 255 00:13:55,600 --> 00:13:57,760 Speaker 1: Over the next year or so, it also just seems 256 00:13:57,800 --> 00:14:00,880 Speaker 1: like more time to allow for compliance fuel supply to 257 00:14:00,880 --> 00:14:03,600 Speaker 1: build up. Yeah, well this is the thing, like after that, 258 00:14:03,720 --> 00:14:05,640 Speaker 1: you know, year eighteen months is up and those those 259 00:14:05,679 --> 00:14:08,240 Speaker 1: investments have been paid off, you're probably not gonna write 260 00:14:08,240 --> 00:14:09,720 Speaker 1: I want to install the scouple because you're not gonna 261 00:14:09,720 --> 00:14:11,040 Speaker 1: able to get hold of the three point five fuel, 262 00:14:11,080 --> 00:14:12,680 Speaker 1: are not gonna able to get hold of the dirty stuff, 263 00:14:12,760 --> 00:14:15,400 Speaker 1: so you might as well, you might as well, um, 264 00:14:16,120 --> 00:14:21,000 Speaker 1: look beyond this, this this transition technology and think think 265 00:14:21,040 --> 00:14:24,040 Speaker 1: longer term about how you comply with with tightening regulations. 266 00:14:24,840 --> 00:14:26,760 Speaker 1: There's also a risk and this is this is going 267 00:14:26,800 --> 00:14:32,080 Speaker 1: beyond the current market question. But what's going to happen 268 00:14:32,120 --> 00:14:35,440 Speaker 1: post I Naturally there's going to be a push toward 269 00:14:35,760 --> 00:14:39,880 Speaker 1: even more stringent targets, perhaps constructs on carbon emissions as 270 00:14:39,920 --> 00:14:45,360 Speaker 1: well as sulfur content of fuels, which is causing a 271 00:14:45,400 --> 00:14:47,480 Speaker 1: lot of shiping companies to lose sleep Can we talk 272 00:14:47,520 --> 00:14:50,720 Speaker 1: about that for a second, Like regulations and center of 273 00:14:50,760 --> 00:14:55,480 Speaker 1: mass or where things are going? Who is enforcing these rules? Right? 274 00:14:55,520 --> 00:14:57,280 Speaker 1: So is it just kind of consensus or did they 275 00:14:57,360 --> 00:15:00,440 Speaker 1: ratify something the shipping companies or what are the loosing sleepover? 276 00:15:00,480 --> 00:15:02,400 Speaker 1: If they say just forget it, I'm just not gonna comply, 277 00:15:02,440 --> 00:15:05,040 Speaker 1: who's going to say anything. There's there's two sectors which 278 00:15:05,040 --> 00:15:08,600 Speaker 1: sort of fall outside of the full stool cracks you say, 279 00:15:08,640 --> 00:15:12,600 Speaker 1: of the global climate policy debate. When you look at 280 00:15:12,600 --> 00:15:15,440 Speaker 1: the Paris Agreement, it's structured around country level targets. So 281 00:15:15,480 --> 00:15:20,920 Speaker 1: each country adopts a golfer its long term carbon low 282 00:15:21,000 --> 00:15:24,920 Speaker 1: carbon pathway. International aviation and international shipping are the two 283 00:15:24,960 --> 00:15:28,040 Speaker 1: sectors which fall outside of that framework, because which country 284 00:15:28,120 --> 00:15:30,560 Speaker 1: we're talking about, which country is responsible for those for 285 00:15:30,560 --> 00:15:32,280 Speaker 1: for those missions and for that, for that, for that 286 00:15:32,320 --> 00:15:34,640 Speaker 1: fuel consumption. So what you have is a is a 287 00:15:34,680 --> 00:15:37,960 Speaker 1: sort of delegation of the of the of the of 288 00:15:38,000 --> 00:15:44,720 Speaker 1: the climate policy framework to the multilateral institutions which are 289 00:15:44,840 --> 00:15:48,400 Speaker 1: most well aligned and most well positioned to be able 290 00:15:48,440 --> 00:15:54,920 Speaker 1: to carry the the issue um into some form of 291 00:15:54,960 --> 00:15:58,040 Speaker 1: regulatory framework. So for aviation you have i k OH 292 00:15:58,120 --> 00:16:01,120 Speaker 1: it's the International Civil Aviation Organization, and for shipping you 293 00:16:01,120 --> 00:16:05,640 Speaker 1: have the IMO. And the IMO operates in very much 294 00:16:05,680 --> 00:16:09,520 Speaker 1: the same way as as the UN Framework Commational Climate Change. 295 00:16:09,520 --> 00:16:12,720 Speaker 1: It's a multilateral organization. They have they have periodic meetings, 296 00:16:13,040 --> 00:16:16,240 Speaker 1: they have working groups, they have a number of leading 297 00:16:16,320 --> 00:16:22,680 Speaker 1: voices have they have different UM country groupings and and 298 00:16:24,360 --> 00:16:28,200 Speaker 1: coalitions which which which take on opposing positions and that 299 00:16:28,280 --> 00:16:33,440 Speaker 1: and that drive the debate. So enforcement of this is 300 00:16:33,520 --> 00:16:36,560 Speaker 1: driven through the IMO framework. To answer the question directly, 301 00:16:37,200 --> 00:16:41,200 Speaker 1: enforcements is based at the flag state level. So in theory, 302 00:16:41,240 --> 00:16:44,480 Speaker 1: if if if a ship is noncompliant, for a ship 303 00:16:44,560 --> 00:16:49,280 Speaker 1: is in some way breaking the rules, the procedure is 304 00:16:49,320 --> 00:16:51,480 Speaker 1: to report that ship to the flag states, and the 305 00:16:51,480 --> 00:16:54,840 Speaker 1: flag state is then obligated onto the IMO framework to act. 306 00:16:55,400 --> 00:16:57,480 Speaker 1: The problem is that most flag states don't have the 307 00:16:57,480 --> 00:16:59,800 Speaker 1: institutional capacity to do so because most ships are actually 308 00:16:59,800 --> 00:17:05,400 Speaker 1: flout in quite random parts of the world Mauritius, Liberia, Panama, 309 00:17:05,560 --> 00:17:10,440 Speaker 1: major flag states, and it's mainly because of various tax reasons. 310 00:17:11,359 --> 00:17:14,000 Speaker 1: But but as a result it's it's it's kind of 311 00:17:14,000 --> 00:17:17,600 Speaker 1: an ineffective compliance framework for anything which is going to 312 00:17:17,600 --> 00:17:22,600 Speaker 1: create a meaningful, meaningful disruption or require meaningful levels of policing. 313 00:17:23,800 --> 00:17:25,879 Speaker 1: So there is a discussion underwear them many about what 314 00:17:25,880 --> 00:17:28,800 Speaker 1: to do about this. Do you shift the burden of 315 00:17:28,840 --> 00:17:32,480 Speaker 1: compliance onto the ports state? Which is one way of 316 00:17:32,480 --> 00:17:35,400 Speaker 1: thinking about it. So if you dock your vessel in Singapore, 317 00:17:35,440 --> 00:17:37,400 Speaker 1: if you dot your vessel in Rotterdam, if you dot 318 00:17:37,400 --> 00:17:40,840 Speaker 1: your vessel in the UK, would the authorities in that 319 00:17:40,920 --> 00:17:45,560 Speaker 1: jurisdiction have the have have the ability under the IMO 320 00:17:45,640 --> 00:17:50,120 Speaker 1: framework to impost sanctions or or to to impound vessels 321 00:17:50,119 --> 00:17:54,639 Speaker 1: to to to do what's necessary to enforce compliance. That 322 00:17:54,840 --> 00:17:59,760 Speaker 1: is an unresolved discussion at this time. Is that way 323 00:18:00,000 --> 00:18:04,000 Speaker 1: their industries or other people, investors, companies are interested in 324 00:18:04,000 --> 00:18:06,760 Speaker 1: this because if it transitions to the port country, right, 325 00:18:07,440 --> 00:18:10,840 Speaker 1: and my goods are being held up in port or 326 00:18:10,880 --> 00:18:14,400 Speaker 1: outside of port, then that affects me. My deliveries are 327 00:18:14,480 --> 00:18:17,520 Speaker 1: not being shipped, right. So is that why non shippers 328 00:18:17,520 --> 00:18:19,399 Speaker 1: are worried about I M O or is there something else? 329 00:18:19,880 --> 00:18:22,919 Speaker 1: I think that the main reason why people people paying 330 00:18:22,960 --> 00:18:25,080 Speaker 1: attention to this is because it is likely to and 331 00:18:25,119 --> 00:18:27,680 Speaker 1: already is increasing the cost structure of the shipping industry, 332 00:18:28,119 --> 00:18:32,200 Speaker 1: so increasing the cost of shipping my stuff wherever. Yeah, 333 00:18:32,320 --> 00:18:34,040 Speaker 1: the compliance issue is a bit of a red heron 334 00:18:34,080 --> 00:18:36,199 Speaker 1: because most people are going to comply. The reason why 335 00:18:36,240 --> 00:18:38,720 Speaker 1: most people are going to comply is because the companies 336 00:18:38,760 --> 00:18:41,960 Speaker 1: involved here are major companies, especially on the container sides, 337 00:18:42,160 --> 00:18:44,280 Speaker 1: on the tankering side, They're just not gonna They're not 338 00:18:44,280 --> 00:18:48,760 Speaker 1: gonna risk the reputational damage that non compliance would would entail. 339 00:18:48,880 --> 00:18:52,400 Speaker 1: If if we're talking about small merchant vessels that are 340 00:18:52,440 --> 00:18:54,439 Speaker 1: that are that are moving between ports in the region, 341 00:18:55,040 --> 00:18:56,520 Speaker 1: that they are probably going to get away with it, 342 00:18:56,840 --> 00:18:59,680 Speaker 1: then yeah, there's going to be non compliance. But we're 343 00:18:59,680 --> 00:19:02,520 Speaker 1: talking in terms of tons of fuel. We're talking we're 344 00:19:02,520 --> 00:19:07,240 Speaker 1: talking small numbers that the major components of demand in 345 00:19:07,280 --> 00:19:11,120 Speaker 1: the international shipping segment are contain a line as tankers 346 00:19:11,119 --> 00:19:14,840 Speaker 1: which are going between major ports, and therefore we're gonna 347 00:19:14,960 --> 00:19:18,359 Speaker 1: we're gonna likely see high high compliance rates across across 348 00:19:18,440 --> 00:19:22,200 Speaker 1: the volumes that matter. The cost structure question is really 349 00:19:22,200 --> 00:19:26,760 Speaker 1: interesting one because the global shipping industry, I'll take a 350 00:19:26,760 --> 00:19:31,960 Speaker 1: step back, there has been a really surprising coalition of 351 00:19:32,000 --> 00:19:36,040 Speaker 1: support for the IS and I followed I've followed through 352 00:19:36,080 --> 00:19:41,000 Speaker 1: my career the climate negotiations and regulatory um discussions at 353 00:19:41,000 --> 00:19:44,040 Speaker 1: the international level for many years, and and and and 354 00:19:44,400 --> 00:19:47,440 Speaker 1: has never ever been a situation that I've seen where 355 00:19:47,560 --> 00:19:54,000 Speaker 1: governments and business and civil society all agree on the 356 00:19:54,040 --> 00:19:57,639 Speaker 1: approach that's being taken and wanted to be implemented as intended. 357 00:19:58,600 --> 00:20:03,439 Speaker 1: If you look at at the aviation discussion in comparison, 358 00:20:03,880 --> 00:20:06,520 Speaker 1: there's there's a huge disconnect between the principles that the 359 00:20:06,520 --> 00:20:09,240 Speaker 1: regulators want to work toward and what the aviation industry 360 00:20:09,240 --> 00:20:11,320 Speaker 1: want because there is no credible pathway the for the 361 00:20:11,359 --> 00:20:14,400 Speaker 1: aviation to reduce CEO two emissions, which is the discussion 362 00:20:14,440 --> 00:20:17,679 Speaker 1: under the IK framework at the moment. For though, the 363 00:20:17,720 --> 00:20:20,439 Speaker 1: reason why the shipping industry are on board is because 364 00:20:20,480 --> 00:20:24,960 Speaker 1: there's a big surplus of capacity in the market, and 365 00:20:24,960 --> 00:20:27,199 Speaker 1: it's been there pretty much the financial crisis. For all 366 00:20:27,200 --> 00:20:30,280 Speaker 1: the vance crisis is very high increase in the rate 367 00:20:30,320 --> 00:20:35,000 Speaker 1: of ship building. That overhang is still really really depressing 368 00:20:36,080 --> 00:20:39,359 Speaker 1: shipping rates globally across almost all segments, but particularly in 369 00:20:39,359 --> 00:20:42,959 Speaker 1: the tank, in the in the in the bulk carrier segment. 370 00:20:43,680 --> 00:20:48,679 Speaker 1: So if you're MASK or CMA, CGM or Happy gloydal 371 00:20:48,760 --> 00:20:52,080 Speaker 1: one of the other big container container liners, or if 372 00:20:52,119 --> 00:20:57,200 Speaker 1: your costco um or one of the other big book carriers, 373 00:20:57,240 --> 00:21:00,359 Speaker 1: what you what you want is to you want to 374 00:21:00,440 --> 00:21:03,399 Speaker 1: flush out the smaller players. You want to try and 375 00:21:03,440 --> 00:21:05,480 Speaker 1: get rid of that over capacity. So what this what 376 00:21:05,560 --> 00:21:07,480 Speaker 1: this is, What this does is it increases the cost 377 00:21:07,480 --> 00:21:09,760 Speaker 1: structure of the industry. The people who are less equipped 378 00:21:09,800 --> 00:21:12,320 Speaker 1: to deal with that increase in costs are smaller players. 379 00:21:12,880 --> 00:21:14,879 Speaker 1: They you're going to get out of business first. You 380 00:21:14,920 --> 00:21:16,280 Speaker 1: might have a little bit of pain if you're one 381 00:21:16,280 --> 00:21:17,760 Speaker 1: of the one of the bigger players, but it's going 382 00:21:17,760 --> 00:21:20,800 Speaker 1: to be to your benefit ultimately because because hopefully the 383 00:21:20,800 --> 00:21:24,760 Speaker 1: whole market can be brought back into balance. So um So, 384 00:21:24,840 --> 00:21:29,480 Speaker 1: I think that in terms of cost the too dynamics 385 00:21:29,480 --> 00:21:31,439 Speaker 1: of play one is the fuel costs going to go up, 386 00:21:31,840 --> 00:21:33,880 Speaker 1: But we're not talking a huge amount here. We're talking 387 00:21:33,880 --> 00:21:37,600 Speaker 1: for a container to be shipped Fromrottenham Singapore's approximately an 388 00:21:37,640 --> 00:21:40,960 Speaker 1: increase of fifty And I live in Singapore. When I 389 00:21:40,960 --> 00:21:43,320 Speaker 1: moved out of there, moving my stuff costs thousands of 390 00:21:43,359 --> 00:21:46,600 Speaker 1: dollars in containers, So you know, we're talking about um 391 00:21:47,600 --> 00:21:50,280 Speaker 1: a couple of percentage points in terms of in terms 392 00:21:50,280 --> 00:21:56,160 Speaker 1: of the cost of transporting goods. However, the real shift 393 00:21:56,880 --> 00:21:59,879 Speaker 1: or potential shift in the cost of shipping is not 394 00:22:00,000 --> 00:22:02,080 Speaker 1: going to come from increased fuel prices. It's going to 395 00:22:02,119 --> 00:22:04,960 Speaker 1: become from come from a tightening of capacity in the 396 00:22:05,000 --> 00:22:08,919 Speaker 1: shipping market, which I'm is not in itself going to 397 00:22:08,920 --> 00:22:14,000 Speaker 1: bring about, but it's definitely going to It's definitely going 398 00:22:14,040 --> 00:22:17,720 Speaker 1: to work in that direction. What are you watching for 399 00:22:18,840 --> 00:22:20,480 Speaker 1: on January one? What are you going to know on 400 00:22:20,600 --> 00:22:22,760 Speaker 1: January one that you don't know now? The first thing 401 00:22:22,760 --> 00:22:25,040 Speaker 1: I'm going to do when I open up my blooming 402 00:22:25,160 --> 00:22:27,520 Speaker 1: terminal on the first day, first first trading day of 403 00:22:27,560 --> 00:22:30,639 Speaker 1: the year is to look at the price bread between 404 00:22:31,560 --> 00:22:34,199 Speaker 1: high sulfur and low sulfur fuel oil, because that is 405 00:22:34,240 --> 00:22:37,600 Speaker 1: the key indication of the extent of the dislocation in 406 00:22:37,640 --> 00:22:40,520 Speaker 1: the market that this is causing. It reflects the balance 407 00:22:40,520 --> 00:22:44,719 Speaker 1: of availability of complying fuel with noncomplying fuel. It also 408 00:22:45,359 --> 00:22:47,800 Speaker 1: gives you an indication of how how refiners are going 409 00:22:47,840 --> 00:22:50,240 Speaker 1: to respond and what refiners are essentially faced with in 410 00:22:50,359 --> 00:22:54,640 Speaker 1: terms of the pricing environment. So what happens from the 411 00:22:54,640 --> 00:22:59,000 Speaker 1: first of January will define how the dynamics of the 412 00:22:59,720 --> 00:23:03,280 Speaker 1: down stream economics will look for a period of time, 413 00:23:03,440 --> 00:23:05,520 Speaker 1: and and the question will then be how big is 414 00:23:05,520 --> 00:23:09,800 Speaker 1: that dislocation and how likely is that dis location to persist, 415 00:23:10,080 --> 00:23:13,640 Speaker 1: Because that's gonna that's going to create trading opportunities, it's 416 00:23:13,640 --> 00:23:18,920 Speaker 1: gonna it's going to create interesting unusual movements of crude 417 00:23:18,920 --> 00:23:22,320 Speaker 1: and products around the world. Potentially, there's also the potential 418 00:23:22,359 --> 00:23:24,919 Speaker 1: for this to actually impact diesel prices quite consistantly. One 419 00:23:24,920 --> 00:23:27,800 Speaker 1: of the big question marks that's been hanging over the 420 00:23:27,800 --> 00:23:33,800 Speaker 1: market all year is will in increased diesel prices? Overall 421 00:23:33,680 --> 00:23:35,679 Speaker 1: we've had this question from a number of clients that 422 00:23:35,720 --> 00:23:37,680 Speaker 1: don't really have any interest in shipping. They just want 423 00:23:37,720 --> 00:23:39,879 Speaker 1: to make sure that the cost of diesel doesn't go up. 424 00:23:39,960 --> 00:23:43,080 Speaker 1: The expectation has been that it would. The expectation has 425 00:23:43,080 --> 00:23:47,440 Speaker 1: been that there will be an increase in middle distillate demand. 426 00:23:47,480 --> 00:23:51,399 Speaker 1: Middle distillance is the casual term for diesel, for kerosene, 427 00:23:51,440 --> 00:23:53,680 Speaker 1: for gas oil, for that middle cut of the barrel. 428 00:23:54,000 --> 00:23:58,000 Speaker 1: And there has been this expectation that that because of 429 00:23:58,080 --> 00:24:02,000 Speaker 1: I'm more of the little distilate supply will have to 430 00:24:02,040 --> 00:24:05,840 Speaker 1: be pushed into into the into the marine sector. So far, 431 00:24:05,920 --> 00:24:07,720 Speaker 1: that doesn't look like it's the case so far. What 432 00:24:07,720 --> 00:24:10,719 Speaker 1: we're actually seeing as the opposite. There's weak demand fundamentals 433 00:24:10,720 --> 00:24:13,680 Speaker 1: for diesel because of the China US trade war, because 434 00:24:13,680 --> 00:24:18,400 Speaker 1: of weak economic growth fundamentals, because there's been particular softening 435 00:24:18,440 --> 00:24:21,480 Speaker 1: of de bands for diesel in India over the last 436 00:24:21,520 --> 00:24:24,720 Speaker 1: few months. That's actually having a much more of an 437 00:24:24,720 --> 00:24:29,840 Speaker 1: impact on on refining margins and middle of su prices 438 00:24:29,840 --> 00:24:31,760 Speaker 1: than I am owas at the moment, whether or not 439 00:24:31,800 --> 00:24:35,720 Speaker 1: come first of Johnny that that switches will make boos. 440 00:24:36,960 --> 00:24:39,080 Speaker 1: Thank you so much for joining us today, and I 441 00:24:39,119 --> 00:24:42,359 Speaker 1: think we look forward in actually having you back after 442 00:24:42,720 --> 00:24:44,760 Speaker 1: the first of Jan and this has actually all had 443 00:24:44,800 --> 00:24:46,920 Speaker 1: some time for the dusk to settle, or maybe the 444 00:24:46,960 --> 00:24:49,439 Speaker 1: sulfur to settle, if you will, Um, Thank you so 445 00:24:49,520 --> 00:24:54,640 Speaker 1: much for joining us today. 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