IMO 2020 Shaking Up How Shipping and the Oil Sector Works?

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  • IMO is meeting for its only MEPC session this year ahead of 2020 sulphur regulations which will be affecting shippers and refiners.
  • The oncoming regulations will reduce air pollution and prevent 570,000 deaths within 5 years of implementation.
  • While ports like Singapore, Fujairah and Rotterdam are all equipped with compliant fuels, the same can’t be said about smaller ports.
  • BP and Royal Dutch Shell have already reported low oil production which has further strengthened the case of fuel non-availability.
  • Keeping this in mind, IMO made the provision of fuel oil non-availability report to be filled at ports which only have non-compliant fuel.
  • Mixing of fuels and their engine damage concern along with open loop scrubbers restrictions are other issues affecting the implementations.
  • IMO’s future regulations ideas like the Greenhouse Gas Emission 2050 target have added to the 2020 investment reluctance

As the shipping industry prepares for tougher sulfur emission rules which are coming into effect the next year, the United Nations Shipping Agency, the International Maritime Organization (IMO) met in London this week for the only Marine Environment Protection Committee (MEPC) session this year which will fine tune guidance and compliance, reports Reuters.

What does it mean for the shippers?

From January 2020, the IMO will ban ships from using fuels with a sulfur content above 0.5%, compared with 3.5% now.

Only ships fitted with sulfur-cleaning devices known as scrubbers will be allowed to continue burning high-sulfur fuel. Ship owners can also opt for other sources of cleaner fuel such as liquefied natural gas (LNG).

Failure to comply with the global regulations will result in fines or vessels being detained, which could affect vital requirements such as insurance cover. The actual enforcement will be policed by flag and port states rather than the IMO.

Refineries separately face significant costs to adapt to the new fuel specifications.

Why is it needed?

The regulations are aimed at improving human health by reducing air pollution.

A study cited by the IMO says over 570,000 premature deaths will be prevented between 2020 and 2025 by the introduction of the tighter guidelines.

Concerns Over Implementations

Towards the end of last year, there had been some industry concerns over whether there would be enough time to prepare for the start of the regulations, even though the measures were fully adopted in 2016.

Given the complex IMO process involved in changing regulations, which would require an estimated 22 months for any amendments to take effect, there will not be enough time to delay the date and the changes will go ahead.

Analysts still question whether there will be full enforcement by flag and port states.

Availability of Compliant Fuels

Oil majors including BP and Royal Dutch Shell have announced they are producing very low sulfur fuels that meet the 0.5% requirements.

One of the major issues is whether there will be enough quantities of compliant fuel around ports across the world, which is vital for ships planning sailings.

While major fuel bunkering ports such as Singapore, Fujairah in the United Arab Emirates and Rotterdam in the Netherlands are expected to have compliant-fuel supplies, analysts and shipping firms point to concerns over what happens at smaller ports.

The IMO approved at the MPEC session a standard format for what it called a “fuel oil non-availability report”, which can be presented to a port state in the event that only non-compliant fuel was available for a vessel to use.

The International Chamber of Shipping association has warned ship owners that such mechanisms were a “tool of last resort” and should not be seen as a “free pass” either to use or carry non-complaint fuel.

New Fuel Safety Concerns

It remains unclear what impact there will be over mixing very low sulfur fuels of 0.5% together, which at this stage have not been fully tested on ship engines. One of the risks is that the level of sediment created could damage engines at sea.

A test video by BP showed the effect of mixing two compliant and stable but incompatible marine fuels with 0.5% sulfur content:

The IMO is working on guidance to avoid mixing different fuel batches.

However, with the potential for bunker fuel contamination after major problems in 2018, this issue continues to raise worries.

Scrubber Ban Concerns

Apart from the use of low sulfur fuel of 0.5%, there is still an issue over whether jurisdictions and ports could restrict the use of certain types of scrubbers due to uncertainty over the effects of the wastewater that gets pumped into the sea.

Ten environmental groups have called on the IMO to impose an immediate ban on the use of scrubbers.

Users of the devices argue that there is no conclusive scientific research showing that discharges from open loop scrubbers – which wash out the sulfur – cause environmental harm and their use was safe. Analysts say there is still the possibility of tighter restrictions, which would add to the costs of those investing in them.

The IMO has encouraged further study into the impact of scrubbers on the environment.

Future Regulations Uncertainty

The IMO is also pressing ahead with imposing tougher targets for cutting CO2 emissions from ships compared with 2008 levels in a phased process up to 2050.

Many companies remain concerned about making investment decisions given expectations of more regulation.

“These future regulations may result in shippers switching to alternative non-petroleum fuels such as LNG,” the U.S. Energy Information Administration said in March.

“Because of this uncertainty, refiners and shippers may be hesitant to invest in complying with IMO 2020 if additional IMO regulations in the future could cause those investments to lose value or no longer be needed”.

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Source: Reuters

 

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