The International Maritime Organization’s (IMO) move to reduce the sulfur cap for bunker fuel from 3.5% to 0.5% by 2020, not 2025, means an overhaul of the industry facilitating 90% of the world’s trade.
High sulfur fuel oil (HSFO) is used approximately by 70% of the world’s bunker fuel and the impact of the IMO ruling could cause a demand drop of as much as 2.1 million barrels per day in HSFO that is about 30% of the global residual fuel oil demand.
LFSO bunkers
Plans to increase the use of both bunkering options are under discussion in the Middle East; the UAE’s Port of Fujairah, the world’s second largest bunkering hub, is already developing LSFO bunkering solutions and in the GCC FSRU LNG import projects can be designed to facilitate LNG bunkering.
LSFO ticks the right environmental boxes and is arguably the Middle East’s easiest shortcut to meeting the IMO’s ruling, as the region’s portfolio of dedicated and sophisticated refineries can adjust their crude palettes to 0.1% (Ultra Low sulfur fuel oil, used in emission control areas (ECA) ) – 0.5% sulfur relatively easily.
Plan tracks for delivery
The lines of communication between refineries, ports and ship owners need to improve to accurately gauge the need and subsequent supply of LSFO supply from 2020. The same applies to minimizing the variability of the blend quality between suppliers all over the world. Meanwhile, LNG bunkering tends to suit fixed maritime routes that already have supporting infrastructure in place, both at ports and via floating storage regasification units (FSRUs).
LNG supply
To broaden the application of LNG bunkering post-2020, advocates of LNG bunkering must also address the question of supply. LNG imports grew by more than 380% in the last three years, S&P Global Platts said in 2017. Energy stakeholders need to work out the logistics and math of sourcing high volumes of LNG for bunkering amidst domestic and industrial needs.
HFSO scrubbers
Other bunkering options include using HSFO alongside scrubbers or exhaust gas cleaning systems, which are not considered as an environmentally-friendly route long term. Additionally, the cost of investing in scrubbers can range between $1-9 million per ship depending on its size.
Cash strapped industry
Ship owners are currently reluctant to make these investments as the industry struggles out of a low margin environment. Alternatively, ship operators can fail to act and pay the penalties. While there is no global game plan — solutions depend on individual needs — there is a consensus that conformity for post-2020 bunkering will help trim overall costs and improve energy supply and security.
Consultants Wood Mackenzie estimated last year that a full compliance scenario would incur an increase of up to $60 billion per year in global bunker fuel costs from 2020, while S&P Global Platts said the impact of these changes will reach $1 trillion over five years.
Sustainable solution
Each point should serve as a reminder that the emphasis on making bunkering ‘greener’ will only intensify; therein lies the value of LSFO and LNG. Leveraging either or both will relieve these intensifying pressure points. They also serve as a good starting point for energy stakeholders to hedge against more shifting sands; more climate-related mitigations in the energy market are inevitably around the corner.
The line between winners and losers in the early 2020s could be well-defined between those who can afford to evolve — and those who cannot.
Did you subscribe for our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Saudi Gazette — The writer is the managing director & head of Middle East, Uniper Global Commodities SE
