About 70,000 ships, including hundreds of vessels in the Philippines, will be affected by the imposition of the global sulphur cap by 2020, according to the International Maritime Organization (IMO).
The IMO, a specialized agency of the United Nations, imposed a 2020 deadline for shipping companies to reduce the sulfur content of marine fuel to 0.5 percent from the current 3.5 percent to mitigate the maritime sector’s greenhouse gas emissions. An alternative is to use scrubbers or exhaust gas-cleaning systems.
The effect will be in the form of higher fuel costs because of an increased demand for compliant fuel or bigger investments required for the acquisition and installation of scrubbers.
The Philippines is now seen as one of the most affected countries, with its major shipping lines set to reinvest in new scrubbers or to purchase higher-priced compliant fuels.
Consultant Wood Mackenzieprojected that from 2020 onwards, the fuel costs may rise by US$60 billion annually, with bunker fuel demand ballooning to 5.3 million barrels a day.
Ian White, the global marketing manager of Exxon Mobil Marine Fuels and Lubricants, said in a London business briefing that a crisis could be expected because of the unprecedented shift.
White said that the crisis should be taken seriously and that shipping companies should start planning as early as now. He said shipping lines and fuel suppliers need coordination to tackle the issue.
The additional problem arises with the unavailability of data for risk management. Projected prices in 2020 are at the moment highly speculative and indeterminate, with initial investments for compliance viewed largely as a measure of panic, according to Philipp Roche, a partner in the international law firm Norton Rose Fulbright.
Roche claimed, however, that compliance authorities will have a grace period for adjustments, which will also pave the way for the same authorities to frame penalties and restrictions.
Three options are being seen to comply with the global cap: the use of Ultra Low Sulfur Fuel Oil (ULSFO), the utilization of Marine Gas Oil (MGO), or the installation of scrubbers.
ULSFO refinery streams are seen to only fulfil about 22 percent of the total demand by 2020, or about 1.2 million barrels a day. Wood Mackenzie sees MGO as a better alternative to meet such demand, although this could be a more costly option.
This higher-priced option will drive freight rates by up to $1 per barrel, and will require more crude runs to meet the estimated increase in demand by 1 million barrels a day.
Many ships will also consider scrubber installation, but this would require an initial investment. Rate of return of up to 50 percent may be expected relative to the investment cost. DNV GL, a global risk management firm, described the installation of scrubs as the most viable and cheapest option within a ten-year period, especially to shipping lines travelling within Emission Control Areas (ECAs).
Independent consultant Dr. Marc Perrin, however, believes that Liquefied Natural Gas (LNG) represents a viable and readily available alternative to low sulphur fuels. The ENGIE Lab CRIGEN consultant reiterated his statements during the 15th Asia Pacific Maritime that large reserves are now being considered for the product and that its price will remain relatively stable in the years to come.
Many local and international shipping companies are looking to pass on the additional cost of fuel to the shippers, but with relatively low success. The regulation in sulphur content has thus far led to a $1-billion net loss even before the 2020 implementation.
White of Exxon Mobil predicted that the world is now “headed to a multi-fuel future,” as shipping companies face the challenge of fuel availability, compatibility, and efficiency beyond the 2020 sulfur cap deadline.
White also mentioned the issue of fuel stability, with the available fuels worldwide being blended with the compliant variants to be within the regulated standards.
Some shipping lines, however, are likely to invest in new ship models and brands to comply with the regulation, said Henriette Brent-Petersen, global head of Shipping and Offshore Research at DVB Bank, in an earlier business briefing.
The Philippines is seen to be the top beneficiary of the policy in the ship manufacturing side, with the country being recognized as the fourth largest shipbuilding nation in the world.
The policy will also fuel the country’s full commitment towards brand-new ship manufacturing beyond 2020, with the nation being previously set as a hub for repairing and remodelling old and outdated ships.
“The Philippine government has had a strong focus on the maritime business for years, which is why foreign investments find a sustainable business environment in the country. Also, the yearlong focus has meant that the Philippines has a Manpower Development Plan for the maritime sector, ensuring that the country has an adequate supply of skilled manpower for shipbuilding and repair,” Denmark Ambassador to the Philippines Jan Top Christensen said.
Earlier this year, IMO Secretary General Kitack Lim pushed for the full implementation of the global sulphur cap by January 1, 2020.
An unpublished report in 2016 by the attached agency of the United Nations warned that a further delay in the implementation of the policy by five years would result in additional 200,000 deaths due to lung cancer and heart illnesses.
The author cited the Philippines to be among the hardest hit by the delay in the implementation, together with Japan, Egypt, Panama, China, and Singapore.
Shipping groups such as the International Chamber of Shipping (ICS) expressed dismay over the sudden implementation of the policy, as they think this will impede the flow of regular maritime exchanges.
The ICS covers around 80 percent of the total maritime fleet in the world, with its vast network of shipping associations. Among its allied groups is the Filipino Shipowners’ Association, a group consisting of 29 regular and associate members in the Philippines.
Several countries have already adopted the necessary measures to comply with the 2020 deadline. Some areas in Europe and North America that are considered as ECAs are already maintaining a 0.1 percent sulphur limit.
Even in China and other Asian nations, some domestic controls are being put in place to regulate sulphur content in fuel before the 2020 schedule.
Credits to: Manila Times