Since the day it was voted into the rulebook on October 28, 2016, a massive regulatory overhaul called “IMO 2020” that mandates lower sulphur limits in marine fuel has provoked a fierce debate. When it goes into force on January 1st, 2020, will the shipping industry be ready? Scott Carpenter delves into the question and the implications of the IMO 2020 Sulphur regulation as the dawn of the new year closes in.
Here’s an insight from that article published in Forbes.
Expected Scenarios
Dozens of consultants’ reports have modeled the scenarios. Conferences from London to Singapore have convened to debate the question. Yet for all the brainpower expended, no one has really known what to expect.
Now, with less than a week to go before the change takes effect, questions over enforcement and the cross-compatibility of some of the new low-sulphur fuels are still unanswered. But the most feared scenario—shortages of the new fuels that ships will require to be compliant—appears unlikely, after refiners upped their output in recent months.
Fuel Availability
“A couple months ago I would have said it’s chaotic and [could be] a shambles,” said Brain Watt, senior vice president at Innospec, a chemicals company. “But it appears there’s more fuel available than first thought.”
The U.S. Senate Committee on Energy and Natural Resources heard much the same earlier this week, when government and private sector officials testified that, “despite early concerns about the potential impacts,” in the words of one expert, there is now fuel aplenty to go around.
Named after the International Maritime Organization, a UN body, IMO 2020 mandates that commercial vessels no longer burn fuel with a sulphur content higher than 0.5% by weight, well below the current 3.5% limit. Sulphur is damaging to human health—a study estimated that 570,000 people would die prematurely over five years if emissions go unabated—but also costly to clean up. The mammoth engines of ocean-going tankers can burn much dirtier fuels with no need to refine away harmful pollutants.
Oil Refineries Refined Enough?
As recently as a couple months ago, speculation still abounded that there would not be enough low-sulphur fuel to satisfy the ravenous appetite of the shipping industry come January 1. In March, a report for the White House by the Council of Economic Advisers warned of a “shortfall” in compliant fuels that would trigger price increases. Fuel oil traders watched in puzzlement as a robust market for low-sulphur fuel oil failed to materialize until the last minute, preventing ship owners from gauging future costs.
But a consensus is now growing that oil refineries have refined ample volumes of the costlier low-sulphur fuel oil, or at least enough to cover short-term needs.
Not Abundant Everywhere
“Refiners say they’re ready,” said Gavin Lipsith, who heads coverage of the maritime industry for specialist outlet Wake Media. “It looks like there are a wide range of fuels that are going to be available.”
Supply hasn’t been abundant everywhere. A few ports in the Mediterranean were experiencing some shortages of low-sulphur fuel as of earlier this week, according to one source who preferred not to be named. Still, these shortages didn’t appear to signal longer-term disruptions, according to the source.
Logistics Concern
Instead, concerns have shifted to logistics. As tankers begin to fuel up with the new varieties of low-sulphur fuel oil, for instance, some shipowners worry that not all of the new fuel is similar enough. Each oil refiner produces slightly different types of fuel, and the concern is that combining modestly different varieties inside ship engines, as is often necessary, won’t work.
Different Fuel at Every Port?
“At every port there is going to be slightly different fuel depending on the refiner,” said Watt. “And nobody quite knows whether these fuels are going to be stable.”
Enforcement Question
Questions over enforcement also persist. The International Maritime Organization will not itself enforce the regulation, instead leaving that to individual member states. While the expectation is that virtually all major ports will enforce the regulations, some countries have hinted that they aren’t eager to enforce them, as though to test whether they would be ensured by the international community.
Indonesia caused a stir in July when its transportation ministry said it would allow ships to keep burning non-compliant fuel oil in territorial waters, although it later reversed course and said it would enforce the rule change. India was also a source of concern for many before it, too, said it would enforce the rule, according to energy publication S&P Global Platts.
90% Prepared for 2020
“I would say…that shipping companies that cover easily about 90% or more of world trade by sea are prepared for IMO 2020,” said Pablo Rodas-Martini, a senior associate at SQ Consult, a Dutch company that specializes in carbon markets and climate change. But for many shipping companies in emerging and developing countries, the costs of buying IMO-compatible fuels could well prove too high, he said. “Companies in countries with strong domestic maritime or river trade such as Russia, India, Indonesia, Philippines, Brazil, Argentina, and some others, will expect that the maritime authorities of their countries do not enforce the regulation for cabotage along their coastlines or rivers.”
US in Line
For its part, the United States, which hinted last year that it might try to wriggle free of IMO 2020, appears to have fallen in line. That may well be because the U.S. oil industry stands to benefit from the new regulations. Oil refineries in the U.S. are among the world’s most modern and capable of refining the kinds of low-sulphur fuels that the shipping industry will demand.
Fuel Barge Shortage
Aside from the long-anticipated issues of fuel cross-compatibility of low-sulphur fuels and the question of enforcement, at least one unforeseen logistical barrier has emerged: a shortage of fuel barges to transport IMO-compliant fuels to ships.
Short Term logistics Issues
The industry “has not always been thinking about the short-term logistical supply issues,” said Watt. “So in some cases ships are coming in [to port], looking for this fuel, and there are simply not enough barges available.”
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Source: Forbes
