Low sulfur fuel oil will likely be the default marine fuel option for many shipowners in 2020, particularly the smaller ones, should they decide to adopt a wait-and-see stance ahead of the International Maritime Organization’s 0.5% global sulfur cap rule, a senior Bimco executive said last week.
Bimco is the world’s largest international shipping association, with around 2,100 members in over 120 countries. Its members control more than half of the global shipping capacity.
Under IMO’s mandate, global sulfur emission limits for marine fuels would be cut to 0.5% in 2020, from the current 3.5%. Ship operators accordingly will have to switch to cleaner, more expensive fuel or to alternative fuels such as LNG, or invest in exhaust gas cleaning systems also known as scrubbers, to comply with the new limits.
“The big question is how do you prepare well for this rule [IMO 2020 global sulfur cap]? The entire industry is banking on refineries to deliver compliant fuel,” Bimco’s chief shipping analyst Peter Sand said on the sidelines of the Asia Pacific Maritime, or APM, event in Singapore.
Options to comply with the rule include marine gasoil, blended fuels, high sulfur fuel oil with scrubbers and alternatives such as LNG. However, confusion reigns as the industry grapples with the magnitude of the change and the possibility of additional costs.
Uptake of scrubbers has been very limited so far, in part due to the huge upfront capital expenditure.
“Even if some bunker suppliers were willing to finance shipowners to install scrubbers, we’re not going to see that many ships with it as owners will have to part with their flexibility and get tied down to only one provider.”
LNG also comes with its own limitations, with the most significant one being the massive infrastructure spending — a requirement unlikely to be fully met by 2020.
As a result, LSFO will be the default option for many, Sand added. “Even though there is no standard for LSFO, you still cannot get it from just one supplier, and it comes with compatibility issues including the risk of cat-fines. Many of the problems can however be overcome with a standard specification for LSFO,” he said.
“We are working with the ISO on various aspects,” he said. Ultimately, it all comes down to the price, Sand said. “Right now we see LSFO futures are being traded only at a discount of [about] $30/mt to MGO and that’s basically why you tend to see also that LSFO is the winner right now due to price. However, in all fairness, you do not get that much of a discount from MGO … it would be nice if LSFO were priced much closer to HSFO,” Sand said.
IMPLEMENTATION NOT ENOUGH
While implementation of the rule is the first step to tackle sulfur emissions in shipping, equally important is its effective enforcement, particularly in the high seas.
“We see a need to make sure this regulation is effective so that the industry has a level playing field to play by,” Sand said.
In this direction, BIMCO supports IMO’s proposal for a carriage ban on non-compliant fuels.
IMO’s sub-committee on pollution prevention and response met in February in London, where it recommended a plan to ban the carriage of non-compliant marine fuel in bunker tanks, with vessels fitted with scrubbers exempted from the rule.
In April, the proposal will be provisionally approved or rejected at IMO’s Marine Environment Protection Committee, or MEPC, meeting. If successful, the measure could be adopted in October for implementation in March 2020.
“The mood is positive so far but it has to be re-affirmed according to the rules of the book that IMO play by,” Sand said.