“The Magnitude Of The Coming Oil Market Transformation Is Unprecedented.”
-Philip Verleger
The International Maritime Organization’s (IMO) new regulations will cut global fuel oil sulphur limits from 3.5% to 0.5% starting 1 January, 2020.
The IMO officially adopted a carriage ban for non-compliant fuel on vessels that do not have scrubbers starting 1 March, 2020.
Based on our proprietary research, we expect only 4,000 vessels will have scrubbers installed.
Up to 3.7mb/d of high sulphur fuel demand will disappear and the increased diesel demand from shippers (on top of base global demand growth) implies a potential 1-1.5mb/d deficit.
Given limited refinery capacity to produce low sulphur fuels, we could see a dramatic increase in diesel prices starting 4Q19.
Industrial consumers of energy need a smart way to hedge this risk, and Enerjen Capital has the solution.
The Enerjen Capital IMO 2020 Note is a long-only hedging vehicle that gives corporates and strategic HNWIs the opportunity to hedge against an IMO 2020-induced diesel price spike.
Within the Note is a curated hedge basket that applies our specialty expertise in the crude oil and refined products markets with upside leverage to protect against a more general oil ‘spike’ risk to create an optimal hedging strategy for consumers.
• Our solution allows corporates to hedge without the need for ISDAs;
• Corporates can get the hedge in place regardless of credit rating;
• The Note will sit on the balance sheet as Financial Notes/Securities and not as a derivatives hedge;
• In many cases, banks will finance Note participation;
• Having the hedge in place will protect counterparty margins and enhance credit worthiness.
Enerjen Capital will deploy funds raised from the Note offering to purchase the hedge basket throughout 2019, so that the hedge is fully placed by the end of 3Q19, which is when shipping companies will need to buy marine diesel for their fleets in order to be compliant on 1 January 2020.
Hedges will be implemented using the most liquid listed instruments and the hedge position will be strategically accumulated.
Initial principle and profit from the note will be distributed to participants at the end of 1Q 2021.