ILMA Compoundings - July 2020 - 27

was difficult to get samples out because
agents were in a lockdown. "It causes
some delays, but at least now it is getting
easier to manage," Røjgaard said.

ENFORCEMENT ACTION
Ames said, overall, there likely has
been limited enforcement of IMO
2020 regulations. "The world has
much bigger problems today," he said.
However, some ports have shared
their findings. The Maritime and
Port Authority (MPA) of Singapore
reported that, in the first quarter of
2020, most ships calling at the Port of
Singapore complied with IMO 2020
requirements. During that time, MPA
conducted 326 Port State Control
(PSC) and Flag State Control inspections in the Port of Singapore.
Pre-arrival notification submitted
to MPA from January to March 2020
showed that about 96% of the ships
that arrived in the Port of Singapore
used compliant fuel. This excluded ships
installed with open-loop scrubbers that
switched to using compliant fuel upon
entering in the Port of Singapore.
MPA reported that 12 ships that
were not fitted with scrubbers were
using fuel that marginally exceeded the
sulfur limit, which could have been
due to remnant residues of high-sulfur
fuel in the fuel oil tanks and piping.
Two foreign-registered ships were
found to be using noncompliant fuel.
They were each issued a PSC detention order and were allowed to depart
from the port after verifying they had
switched to compliant fuel.
In May, the Australian Maritime
Safety Authority detained a ship for
having fuel with a sulfur content of
1.38%, which is an IMO 2020 violation. MUR Shipping's dry bulk carrier,
the African Heron, was held at the port
of Geelong after it was found with noncompliant fuel oil on board. The ship
was detained on May 1 and released on
May 3 after the noncompliant fuel was

discharged ashore and the fuel system
was cleaned.

FREIGHT COSTS
Ames said freight costs initially increased
due to IMO 2020 but have decreased
as prices have gone down. "Now
they are less than they were last year,"
he said. "There really was very little
increase in freight costs to IMO 2020."
However, some freight costs have
gone up because producers are trying
to use these ships to store their crude
oil that isn't selling. "As the crude prices
collapsed, there was a huge incentive
to put crude into storage," Eskew said.
"One of the ways market players can do
that is to use floating storage. There was
an enormous run-up in freight rates
due to this interest in using tankers as
floating storage."

BASE OIL PROJECTIONS
The industry had expected Group I
economics would be affected because
of the nature of their yield and the
byproducts they produce, but the
reduction in demand has had a much
more significant effect on the production of those plants than IMO 2020,
Eskew said. He added that the differentials between base oils and feedstocks
had taken a considerable jump.
"The issue is, can they sell the base oil?
If they're associated with a fuel refinery,
are they operating at a level that throttles
back base oil production? The market
impacts most folks expected from IMO
2020 have been overwhelmed due
to the changes in demand caused by
the pandemic and, on top of that, the
crude oil price war between Russia and
Saudi Arabia," Eskew said. "It is hard to
disassociate those."
Beginning in the fourth quarter last
year and extending to January of this
year, the margins on base oil were so
poor that people were dumping their
surplus base oils into the VLSFOs,
Ames said. "It was more profitable to
do that than try to sell them for the

distressed prices. That was when crude
was still up in the $60-$70 range,"
he said.
Ames said Kline estimated that finished lubricant sales are off 25%-30%
overall. "That certainly implies there
is less demand for base oil," he said.
"Everybody was going on producing
them until somebody said, 'My tanks
filled up. Stop ordering.'"
Eskew said there isn't any data
to say where products are cut back
because the demand decrease has been
broad across the board. "The expected
changes in the market due to IMO
2020 would have caused some upward
pressure on bright stock values, but
that really hasn't happened," he said.

A LOOK TO THE FUTURE
Eskew said he believes the disruptions
the industry expected to see from
IMO 2020 have been evened out
rather than delayed. "We expected
that 2020 was going to be much more
disruptive than 2021 and 2022," he
said. "Because of the slump in demand
and the COVID impacts, we sliced
away the hump of the disruption.
The refining industry becomes more
prepared as time goes by."
Ames said the potential impact on
a long-term basis is probably quite
a bit less than the industry initially
forecasted, but he said that the
industry could change quickly, given
the uncertainty that exists. "What
is factually correct today could be
drastically different in a week," he said.
"It is a turbulent market."
For now, much of the industry
is waiting to see when supply and
demand will balance out. "I don't see
prices and demand bouncing back
until OPEC+ cuts production to
match demand and draw down some
of these inventories," Ames said.
Long is a freelance writer and journalist.
She can be reached at 925-750-7163
or mindy@mindylong.com.

27



ILMA Compoundings - July 2020

Table of Contents for the Digital Edition of ILMA Compoundings - July 2020

ILMA Compoundings - July 2020 - Cover1
ILMA Compoundings - July 2020 - Cover2
ILMA Compoundings - July 2020 - 1
ILMA Compoundings - July 2020 - 2
ILMA Compoundings - July 2020 - 3
ILMA Compoundings - July 2020 - 4
ILMA Compoundings - July 2020 - 5
ILMA Compoundings - July 2020 - 6
ILMA Compoundings - July 2020 - 7
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