"Dirty and unwanted" was how many market participants summarized the prospects for high sulfur fuel oil after IMO 2020 took effect, but more than a year on, this outlook has refused to materialize.
Instead, scrubber washing technology has helped the shipping fuel find a niche within IMO 2020's framework, rescuing it from a quick demise.
Analysts are now warning that the fuel may have an expiration date as the shipping industry moves towards tougher emissions targets, but there is little certainty over its remaining lifespan.
Effective from January 1 last year, IMO 2020 rules allow shipowners to burn high sulfur fuel oil of 3.5% sulfur content only in combination with a scrubber, which removes enough sulfur to attain the regulated level of 0.5% or below.
But prior expectations—that HSFO would play a marginal role have given way to a very different reality. The most recent data from Rotterdam—Europe's largest refuelling hub—shows HSFO accounted for 26% of total marine fuel sales during Q1 2021.
Rotterdam's performance comes with a caveat, however. Since IMO-2020 was implemented, demand for HSFO is being driven by larger vessels, due to the high capital cost of scrubber installations and economies of scale.
The result has been a patchier HSFO demand pattern at ports, shifting more volume to major refuelling hubs such as Rotterdam because smaller neighboring ports could no longer make economics work to keep supplying it, analysts have said.
Nonetheless, at Algeciras in Spain, HSFO demand represented 15% of total marine fuel volumes sold last year, while marine gasoil (distillate fuel) accounted for only 10%.
Attitudes have changed so much that Northwest European supplier, Trefoil, recently started supplying HSFO again after a pause, due to "more demand coming in by key customers."
It is increasingly apparent that demand for HSFO is not going away without a fight, and data around planned scrubber installations also bolsters this view.
The global fleet of vessels equipped with scrubbers is anticipated to grow 10% to 4,629 by 2022, S&P Global Platts Analytics data shows. Thereafter, a 2% yearly rise is expected until 2025, which equates to HSFO consumption almost doubling between 2020 and 2025.
"[HSFO demand] will remain until new solutions and future fuels are widely introduced on the industry's path to decarbonization." BIMCO's chief shipping analyst Peter Sand said.
The shipping sector's path to decarbonization is becoming a more pressing issue and receiving more scrutiny as the next emissions targets loom.
The IMO has set the industry a target of 40% decrease in CO2 emissions by 2030 compared with 2008 levels and a 50% decrease in greenhouse gas emissions by 2050.
Estimates from Platts Analytics show that post-IMO 2020 demand for high sulfur fuel oil is expected to total 26% of global marine fuel demand by 2040, even despite the tougher industry regulations that will be in place by then.
Analysts have warned of an expiration date for scrubber technology, as it only enables "dirty" fuels to meet current compliance targets, not future ones.
That has not stopped manufacturer, Wartsila, from trying to prove critics wrong as it explores the potential for scrubber units to strip CO2 emissions as well as sulfur.
Meanwhile, Platts Analytics has said that efficiency gains of 4% per year for the industry from 2020 onwards would result in the industry meeting its 2030 emissions target without the use of alternative fuels.
Enthusiastic use of the bottom of the oil barrel seems contradictory in the context of energy transition. Nevertheless, practical and economic considerations cannot be disregarded, especially given that a vessel lifespan is approximately 25 years.
Given the infancy of some greener alternatives, high sulfur fuel oil is likely to be hustling until its bitter end.