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Low-sulphur fuel availability a reason of concern as new emission rules approach

Date: 23/08/2016

A difference in regulations from one part of the world to the other, is threatening to wreak havoc in the ship owning community, as owners will have to switch vessels, instead of fuels, depending on which part of the world they operate, as it’s still not quite clear whether they can have access to low sulphur fuels. As such, this coming October could prove very crucial regarding the future of the industry, as the International Maritime Organization (IMO) will hold the 70th Marine Environment Protection Committee (MEPC) meeting where it is anticipated that there will be an announcement on the timing of the implementation of the new global sulphur cap for marine fuels.

It’s worth noting that “back in October 2008, the IMO agreed to reduce the maximum sulphur content in marine fuel to 3.5% from 2012, with a further reduction to 0.5% from 2020 onwards. Following protests from various stakeholders who wished to delay the deadline to 2025, the IMO commissioned a firm of consultants to assess availability of compliant marine fuel for the original 2020 deadline. The regulation as it currently stands (MARPOL Annex VI, Reg.14) stipulates that the global maximum permissible sulphur limit on marine fuel will be 0.5% outside of the Emission Control Areas (ECA). The limit inside the existing ECAs is already set at the much lower 0.1%, said shipbroker Gibson in its latest weekly report.

Meanwhile, “the IMO are currently sitting on the results of the consultancy’s study which is believed to suggest that global distillate production capacity will grow faster than demand. The International Bunker Industry Association (IBIA), which represents both shipowners and bunker suppliers, believes that 2020 will be the IMO’s chosen date. IBIA believes that the study is flawed as it assumes ships will only use fuels with maximum 0.1% sulphur content within the ECAs after implementation. Also that by 2020 there will be widespread adoption of exhaust gas cleaning systems”, Gibson noted.

The shipbroker added that “over the past two years, global shipping has become accustomed to lower bunker prices as a result of the oil price shock and many owners/charterers have absorbed the additional cost of the low sulphur fuels for ECA compliance. As a result, investment in emission abatement systems (on vessels trading outside of the ECAs) has had a very limited uptake. Effectively this means that these systems are relatively untested for ocean-going tonnage because most of the larger ships have, up until now, had little or no requirement for scrubbers as many never enter the ECAs. Owners who have taken delivery of new tonnage over recent years have benefited from many of the ECO developments, which have reduced their consumptions and improved efficiency”.

Even so, as Gibson points out, “to comply with the new sulphur regulations there are only three main options, switch to 0.5% fuel, install scrubbers or convert to use LNG, all carry different benefits, risks and not least costs. IBIA is concerned that the industry may not have access to sufficient supplies of compliant 0.5% low sulphur fuel by 2020 to meet shipping demands going forward. Regardless of any announcement from the IMO in October, the EU has already stated its policy by adopting the 0.5% for all member states in 2020. This is written into EU legislation and not open to debate. Effectively this means that vessels trading in northern Europe will be subject to the ECA sulphur rules, while Mediterranean EU states will have to conform to 0.5% sulphur content fuel, possibly ahead or the rest of the globe. What shipowners require is clarity and full marks to the IMO for trying to advance the announcement. However, decisions taken by the organization have significant repercussions at a time when many owners are trying to keep their tonnage operating in difficult markets. Climate change and the need to lower harmful emissions is vital, but we also have to be sure that the solution is clear and workable”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, “VLCC activity kept to a steady albeit slow flow this week but with the extent of available tonnage available Owners were given little opportunity to push levels on. Currently last done levels West are 280,000mt x ws 24 to the US Gulf via Suez and to the East we are seeing levels nudging around 270,000mt x ws 42.5. Suezmaxes had a rough week and tonnage saw the influence of the shorter Basrah programme with limited activity to support rates. West rates have remained in the low 30s and the East took a blow, down to the Mid 50s, with no sign of improvement for the time being. Aframaxes in the AG endured a stale week with the usual recycling of the less-approved vessels in the area for short voyages and Charterers making the most of a poor Suezmax market and utilising the larger tonnage for the odd jucier voyage. A much busier Far East market has limited the flow of ballasters which should help with trimming the list but for now Charterers remain in control, currently rates for AG/East remain around 80,000mt xws 85-87.5”, Gibson said.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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