Unchartered waters: IMO 2020
The shipping industry has had years to prepare for tighter emissions standards coming into force next year, but it is in the coming months that much of their planning will be translated into action. By Surabhi Sahu
Benjamin Franklin once said: “You may delay, but time will not.” This is certainly true for the international shipping industry as it prepares for a plethora of stricter environmental rules that are set to bring escalating costs and operational challenges.
Among the upcoming rules, the International Maritime Organization’s global sulfur limit for marine fuels, which will be cut to 0.5% from January 1, 2020, is among the most significant.
While restrictions on sulfur emissions in shipping are not an entirely new concept, as Emission Control Areas in certain regions have long existed, the transition to the IMO 2020 rule is daunting. The majority of bunker demand will have to switch from high-sulfur fuel oil (HSFO) to 0.5% sulfur almost overnight, calling for extensive planning by shipowners, charterers, ship crew and refiners, among others.
The operational challenges will be manifold, and the costs astronomical. S&P Global Platts Analytics estimates the total global impact of this rule on various sectors in the energy space, as well as other industries, will be in excess of $1 trillion over five years.
Shipowners will have to choose a marine fuel strategically, considering factors such as the age of their vessels, trading routes and locational availability of the various fuel options. They will also have to manage the fuels after bunkering, with critical factors being how many receiving tanks the vessel has and tank segregation requirements.
According to Platts Analytics, the global bunker fuel specification changes in 2020 mean some 3 million b/d of HSFO will have to be replaced. As a result, LSFO, marine gasoil and blended distillates will all play important roles in the bunker fuel mix in 2020 and onward.
The exact bunker fuel mix that will prevail is still an unknown, as it will depend on availability of the different fuels as well as their relative pricing. Still, there is growing consensus in the industry now that very low sulfur fuel oil (VLSFO) will be one of the main marine fuel choices come 2020. In fact, either through direct use or blending, gasoil will also be in greater demand because of the sulfur limit change for marine fuels under IMO 2020.
Recent announcements by oil majors such as ExxonMobil, BP, Total, Cepsa, Sinopec on the supply of 0.5% sulfur bunker fuels to meet rising demand have quelled some concerns in the industry about their availability.
There is also the option of equipping a vessel with scrubber technology, which removes sulfur oxides from the exhaust gas of ship engines, meaning HSFO can still be burnt.
Most shipowners have already made a conscious choice regarding their bunker fuel choice post-2020.
This includes many big shipping companies such as AP Moller-Maersk, Hapag-Lloyd, Teekay Tankers, BW Group, CMA CGM, Pacific International Lines and Mitsui OSK Lines.
Japan’s MOL, for example, will mainly use low-sulfur fuel oil, but also plans to install sulfur oxides scrubbers on about 50 vessels, mainly VLCC and capesize bulkers, the company said in May.
The company is also advancing plans to use other cleaner fuels – LNG and methanol – for bunkering.
Some container shipping companies, such as Maersk and Hapag Lloyd, plan to use both 0.5% sulfur marine fuels and scrubbers with HSFO to comply with the rule.
But in any case, taking no action is arguably a decision on the part of a shipowner, implying that VLSFO or 0.5% sulfur compliant bunker fuel will likely become their default marine fuel choice.
An important procedure to carry out before switching, as emphasized by the International Bunker Industry Association last year, is cleaning of fuel oil tanks. Failure to do so could see a vessel breach the sulfur limit despite being loaded with compliant fuel, and also carries operational risks, according to the IBIA.
Some global shipping companies, such as Thailand’s Precious Shipping and Norway headquartered Hoegh Autoliners, have already said that they are cleaning bunker tanks on their vessels.
For those who plan to use 0.5% sulfur bunker fuels and haven’t started the clean-out, there should be an urgency to do so to ensure there is no residual heavy sulfur fuel left in them.