More than 3 million barrels of sludge-like high sulphur fuel is burnt by the tens of thousands of ships sailing the world’s oceans every single day.
With less than six months to go before the new rules on marine fuels come into force, CNBC recently published an article taking a look at the far-reaching consequences of the coming changes.
Here’s an excerpt from it.
The tremendous transition
Steve Sawyer, senior analyst at energy consultant Facts Global Energy said that it is the biggest change in oil market history.
Sawyer said, it is going to affect crude oil producers, traders, ship owners, refiners, equity investors, insurance companies, logistical businesses, banks… Who’s left? “I’m struggling to think of anyone it might not affect. That’s why it is a huge transition.”
What is IMO 2020?
- On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.
- The IMO is set to ban shipping vessels using fuel with a sulfur content higher than 0.5%, compared to levels of 3.5% at present.
- The most commonly used marine fuel is thought to have a sulfur content of around 2.7%.
Why IMO 2020?
The new regulations are the result of a recommendation that came from a subcommittee at the United Nations (UN) more than a decade ago.
It was adopted in 2016 by the UN’s IMO, which sets rules for shipping safety, security and pollution. More than 170 countries, including the U.S., have signed on to the fuel change.
Starting in 2020, ships found in violation of the new laws risk being impounded and ports in cooperating countries are expected to police visiting vessels.
Why does it matter?
Anthony Gurnee, CEO of Ardmore Shipping, told “It is an enormous switch. If you considered shipping alongside all of the oil consuming nations, it would be number four or five on the list, so it is an enormous amount of consumption.”
“We are going to a fundamentally different type of fuel. It is having a bigger impact, actually on the refining industry than it is on shipping,” Gurnee said.
Oversupply of HSFO
- The forthcoming measures are expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products.
- Ratcheting up the pressure on the refining industry to produce substantially more of the latter.
- Energy analysts see this important, as Middle Eastern oil producers are likely to lose out given their over-reliance on crude with a high-sulfur content.
Green shipping market
The shipping industry is under intense pressure to slash its sulfur emissions, given the pollutant is a component of acid rain, which harms vegetation and wildlife, and contributes to the acidification of the oceans.
The proposed rule change comes at a time when the stakes are high for the world’s shipping vessels. Late last year, analysts at UBS estimated the green shipping market could be worth at least $250 billion over the next five years.
Any chance it could be delayed?
The answer is in a word: NO.
The IMO has said there can now be no change to the implementation date, as it is too late for any revisions to take place before January 1, 2020.
How to meet the new regulations?
Ship owners can significantly reduce their sulfur emissions by:
- using low-sulfur fuel,
- traveling more slowly,
- installing exhaust gas cleaning systems to remove sulphur oxides from the ship’s engine and boiler exhaust gases
- opting for other more expensive clean fuels such as liquefied natural gas.
A ship fitted with a scrubber could continue to use heavy oil, since the sulfur oxide emissions would be reduced to a level equivalent to the required limit.
Container industry gets the hit hard
Analysts estimate the container industry which transports consumer goods such as sofas, designer clothes and bananas is likely to be among those hit the hardest, with additional costs of approximately $10 billion.
The world’s two largest container shipping lines, A.P. Moller-Maersk and MSC, have both reportedly said that falling in line with IMO regulations is likely to incur extra costs of roughly $2 billion each.
Get hurt or get a way
Sawyer said that he firmly believes that the market will find a balance.
“Let me put it this way, there is a brick wall coming at the end of December which has been built for over two years. I think you can either run into it head first and say: ‘that hurts,’ or you can find a way around it.”
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Source: CNBC
