There is no need to delay the proposed implementation of new marine sulfur emission norms beyond 2020, as the refining industry has the ability to go through the change, a senior BP executive said this week.
“The market is in a flux but a delay doesn’t help in any way. It will cause more confusion in the market,” Janet Kong, BP’s CEO for integrated supply and trading in the Eastern Hemisphere, said at the Asia Pacific Petroleum Conference in Singapore.
The International Maritime Organization has stipulated a reduction in the maximum sulfur limit in marine fuels from 3.5% to 0.5% from January 2020 onwards.
In just over two years, all ships across the globe will mandatorily have to use low-sulfur fuels or gas instead of the high-sulfur fuel oil that currently dominates the market. Those ships which continue to use HSFO, will need to install scrubbers, which cost anything between $1 million and $10 million, market participants said.
“From BP’s perspective, it is fully prepared to meet the demand for HSFO, low-sulfur fuel oil and marine gasoil,” Kong said.
It is the shipping industry which needs more clarity on the guidelines, she said. If more explicit clarity is provided in the upcoming meetings of IMO, on the procedures and implementation of new rules, and ship-owners feel confident that they can go ahead and use HSFO, within the requisite emission caps, then they will feel encouraged to install scrubbers, she added.
Scrubbers are exhaust gas cleaning systems that remove sulfur from fuel, thus enabling continuous use of HSFO, and are permitted under the IMO rules but have related technical and environmental challenges.
Port authorities need to install facilities to capture the discharged waste from scrubbers, Kong said.
The wash-water of a scrubber is an acid which is very corrosive. In an open-loop scrubber, this will be discharged in the oceans and seas. Ship-owners have options to invest in hybrid scrubbers that have closed loop for operations in ports that do not allow direct discharge of wash-waste into the waters. Currently, only a minuscule number of ships, out of the global merchant fleet population of more than 85,000, have installed scrubbers, though buyers of newbuilding ships have been given such option.
WIDE PRICE SPREADS CAN SUPPORT SCRUBBERS
Separately, at the same conference, Edward Morse, managing director and global head of research at Citi, said that a higher spread between HSFO and LSFO will be an incentive for ships to put scrubbers in engines. A fall in HSFO prices and a rise in that of LSFO can widen this spread.
This is not the first disruption in the energy market, he said and cited an earlier instance of the large-scale conversion of truck fleet from gasoline to gasoil engines.
However, the scale of proposed changes in large. When the Emission Control Areas regime was implemented in 2015, its incremental impact was to the tune of 0.2 million b/d on the 28 million b/d diesel market.
According to shipping industry estimates, based on current demand, close to 2.5 million b/d, or over 75% of the current bunker fuel market, will be displaced when the lower sulfur content norms are implemented.
“There are multiple pathways and innovation to comply with the situation but there are uncertainties around technology, costs and enforcements,” Morse said.
So far, the pace of installation of scrubbers on ships is slow and the number of LNG-fueled ships is also less, he said.
The possible winners of the implementation of the new IMO norms will be shippers who have alternatives, complex refineries, scrubbers and dry-docking industry, producers of sweet crude, independent or teapot refineries in China, companies using fuel oil for power generation, and hydrogen suppliers for desulfurization, he said.
The marine bunker fuel market may turn out to be weaker than expected, while the use of fuel oil for power generation may provide for high absorption of HSFO, he added.
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