From 1 January 2020, the International Maritime Organization (IMO) will enforce a new 0.5% global sulphur cap on fuel content. This new cap is in response to environmental concerns, specifically the emission generated by the shipping industry.
We are now past the halfway point between the announcement and the 2020 deadline. The cap was announced at the October 2016 session of the IMO’s Marine Environmental Protection Committee (MEPC).
In a rather short timeline, this new regulation likely brings unprecedented change to the maritime fuels supply landscape, while simultaneously posing a significant challenge to ship owners. Tim Huxley, Managing Director of Mandarin Shipping, aptly states, “It is rare that a new regulation comes into force that throws up so many uncertainties.”
To comply with the cap, ship owners have two options: install scrubbers which remove sulphur dioxide from exhaust fumes, or switch to low-sulphur fuel (from the current 3.5%). According to Huxley, the cap’s tight timing now dictates the direction for many ship owners, “It is probably now not possible to order and install scrubbers in time for the changeover date, and so ship owners are going to plan to switch to low-sulphur fuel.”
This switch to a new fuel type involves cleaning the ship’s current fuel tanks and fuel systems of all Heavy Fuel Oil (HFO) residues. Huxley notes this work must be executed in a shipyard and will likely take 7-10 days. The challenge between now and 2020 will be shipyard capacity, and those looking to modify over the winter seasons will be faced with the additional task of dealing with solidified sludge.
“Alternatively, owners can clean their tanks using chemicals, but this may take some time, and there are questions being raised about its effectiveness,” shares Huxley. It’s a very real timing challenge for ship owners, who are unlikely to want to switch to the new, more expensive fuel before it is absolutely necessary.
He continues, “Shippers are unlikely to want to see owners switch to low-sulphur fuel in advance as it is so much more expensive than the HFO currently in use. If it is not a legal requirement to burn low-sulphur fuel until 1 January 2020, they are unlikely to be willing to pay for it in advance. It’s a big challenge and, without a doubt, there will be some disruption.”
And what of the cost to shippers – will the cost of modifications and new fuel challenges be passed on? Sunny Ho from Hong Kong Shippers’ Council is adamant these costs shouldn’t be passed on, “Lines should not take advantage of this situation and demand a fuel surcharge. A surcharge should be allowed only in unforeseeable situations such as war.” He continues, “In many parts of the globe, such as Europe and North America, low-sulphur fuel has been a standard requirement for a few years already. Hence, there is no justification for a new charge. Fuel is a basic operation cost for liners and, hence, should be part of basic freight and could never be a new surcharge item.”
A ship’s traditional source of energy is HFO, which has high sulphur content and is a contentious energy source that environmentalists do not support. According to a Seatrade Maritime report, global demand for HFO accounted for 70% of mixed grade bunker fuels. With the new regulation, this demand is set to be altered.
Huxley notes that there has been some speculation about the availability of this new fuel in various bunker ports. “Oil companies have generally been non-committal about availability, although it seems it is not as big a problem as we all thought.” He continues, “Certainly there should be availability at the main bunkering ports, but the price is going to be based on demand.”