2020 IMO Low-Sulphur Deadline Sends Jitters to Global Shipping Industry.

low-sulphur

Piriye Kiyaramo

The International Maritime Organization (IMO) will enforce a new 0.5% global Sulphur cap on fuel content from 1 January 2020, lowering from the present 3.5% limit. The global fuel sulphur cap is part of the IMO’s response to heightening environmental concerns, contributed in part by harmful emissions from ships.

IMO 2020 low Sulphur deadline was confirmed at the 70th session of IMO’s Marine Environment Protection Committee (MEPC) held in October 2016. This rather very stringent Sulphur regulation has led to shipowners and operators mulling over which options they should choose in order to comply with the IMO regulation, just as refiners are equally considering whether to produce more low-sulphur fuel to meet possibly higher demand, as both parties anticipate an unprecedented change in the marine fuels supply landscape.

In response to these new tougher global marine fuel rules, by IMO, the world’s number two container line, MSC says it expects to pay over $2 billion a year in fuel costs, adding that it will introduce a bunker charge next year to recoup expenses.

MSC spokesman said on Monday, said “MSC has estimated that the cost of the various changes we are making to our fleet and its fuel supply is in excess of two billion dollars (USD) per year. We have already had to start incurring these costs to be ready for 2020.

“Clearly, MSC will need to use a large amount of low-sulphur fuels to propel the fleet, in order to meet the 2020 low-sulphur cap.

“At the same time, a significant portion of MSC’s owned ships will be equipped with exhaust gas cleaning systems. For a shipping line of our size, with a global network, it makes sense to have a combination of these solutions,”.

MSC said it would levy a bunker recovery charge from Jan. 1, 2019 “as a result of the regulatory changes we all support”.

The privately-owned group has a fleet of 510 vessels with a total capacity of 3.3 million TEUs, which includes both owned and chartered vessels, spokesman hinted on Monday.

The International Maritime Organization (IMO) from Jan. 1, 2020 will prohibit ships from using fuels with sulphur content above 0.5 percent, compared with 3.5 percent today, unless they are equipped with exhaust gas cleaning systems, known as scrubbers, to clean up sulphur emissions.

For shipping companies struggling from years of weaker earnings, the new regulations are expected to mean more cost pressure.

In September, Denmark’s Maersk Line, the world’s number one container shipping carrier, said it would introduce a new bunker adjustment factor surcharge from Jan. 1 2019, saying it expected extra fuel costs of at least $2 billion annually.

Apart from scrubbers and low sulphur fuel, shipping companies can also use LNG as an alternative marine fuel, although its usage is still at an early stage.

The issue with the 0.5% sulphur cap regulation is that it has turned into a textbook conundrum for refiners (the fuel suppliers) and shipowners (the fuel buyers), caught in a quandary whereby suppliers are unable to commit on how much to produce as buyers do not know how much is needed, vice versa.

The refiners, though they are not regulated by IMO, cannot pretend that nothing has happened as they have a commercial interest to cater to market needs through changes to production configuration so as to maximise margins.

Global shipping industry, the one on the receiving end of the IMO regulation, will have to deal with not only the upcoming global 0.5% sulphur cap, but also the existing 0.1% sulphur cap in designated Emission Control Areas (ECAs).

There are three options shipowners can consider in order to comply with the IMO regulations. First, shipowners can install exhaust gas cleaning systems on their ships. Secondly, owners can simply buy compliant fuels at higher costs. Thirdly, ships can run on the clean gas LNG as fuel.