Shipping industry mulls billions in extra costs as sulfur cap looms

Shipping-emissions

Shipowners and bunker suppliers at the Platts European Bunker Fuel conference in Rotterdam Wednesday voiced concern at the vast scale of extra costs involved in complying with upcoming more stringent sulfur regulations, and called for more clarity on what the impact would be on prices of imported consumer goods.

“While the total costs of 2015 [ECA zone] requirements were around $500 million, the 2020 requirements could add an annual total cost in the order of $5 billion to $30 billion for the container shipping industry,” Senior Business Development Manager at Maersk Oil Trading Dea Forchhammer said, citing OECD figures released last week.

While not opposed to the global 0.5% sulfur cap, Maersk is concerned that other shipping lines would baulk at these costs, and avoid compliance by using cheaper, higher sulfur fuel to undercut them on freight rates, she said.

Another delegate argued that all extra costs for the shipping industry would be passed on to consumers through higher freight costs.

“Did anyone disclose to the public that every imported [consumer good] you buy is going to cost more, who knows say $100, $200, because of a lower sulfur content being given off from ships into the air? Has anyone announced this?”

Many delegates at the conference raised questions about how prepared the bunker fuel industry is for a 2020 implementation of the International Maritime Organization’s planned 0.5% sulfur cap, and how a troubled shipping industry would deal with the costs.

Pushing implementation back to 2025 could save the shipping industry somewhere between $30 billion and $50 billion, media and communications manager at the International Bunker Industry Association Unni Einemo said.

The IBIA, which represents both suppliers and end users of marine fuel, does not have an official stance on whether the IMO should implement this more stringent sulfur limit in 2020 or 2025, but Einemo said there are at least many issues that are unresolved ahead of the earlier of the two potential implementation dates.

“It’s such a brutal change, maybe it should be a phased introduction, even over six months would help,” she said.

Consultancy CE Delft and its partners have made a provisional study for the IMO that a 2020 implementation could be handled by by the global refining sector, given the expansion in secondary unit capacity to produce more middle distillates.

The IMO plans to make a decision on the implementation date of the 0.5% sulfur cap based on the results of this study, but it is far from clear what they will decide, Einemo said.

“There could be a silent majority of countries at the IMO who want a 2025 implementation, we won’t know until October.”

The drop from a 3.5% to 0.5% global sulfur cap (outside ECA zones) is extremely steep, said many delegates at the Rotterdam conference, and raises challenges for refiners, shipowners, and the logistics of multiple tank storage for the several grades likely to be in use.

Shipowners with scrubbers will still be able to use 3.5% sulfur fuel oil, but if these are still a minority of ships in 2020, as seems likely, 3.5% sulfur fuel oil could become a more niche product, and perhaps be more expensive than expected, delegates said.

In addition, it will be increasingly difficult to match 0.5% sulfur to the currently prevalent ISO: 8217 specifications, said Einemo, as although they’re categorized as residual fuels, in many ways they are superior.

Even if the IMO delays implementation to 2025, the EU still going ahead with a 0.5% limit in 2020.

This would create a more complex-shaped low sulfur emissions zone in territorial waters of EU countries, including around islands such as the Canary Islands.

“Ships might try to hug the North African coastline to avoid sailing within EU waters,” said Einemo. “What would happen at the straits of Gibraltar, where there is a two-way system to cope with vessel traffic?”

Source: Platts

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