By Sonny Atumah
The long awaited implementation of the International Maritime Organisation (IMO) regulation limiting sulphur dioxide emissions from international shipping comes into force next Wednesday, January 1, 2020.
The new rule in the New Year also known as IMO 2020, will create new dynamics in the reduction of sulphur content in bunker fuel oil from the current 3.5 percent to 0.5 percent mass by mass (m/m) in global shipping fleet.
In Emission Control Areas (ECAs) the limit will be down to 0.10 percent. As of 2011, the four existing ECAs were the Baltic Sea, the North Sea, the North American ECA, including most of US and Canadian coast and the US Caribbean ECA. Most vessels are expected to use new blends of fuel oil that would be produced to meet the 0.5 percent limit on sulphur in fuel oil. It means that low sulphur fuels such as middle distillates would displace high sulphur fuel oil in the bunker fuel business.
The growing pressure has been for manufacturers’ to build new cargo ships to reduce greenhouse gas emissions in the industry. The rule would see the over 53,000 global merchant ships that consume about 4 million barrels per day, bpd marine bunker fuels bring a new market regime for fuel refiners. Experts have come to the conclusion that climate change has become a global issue that it requires mobilisation of partners internationally.
Many thought it would be delayed till the mid 2020s but the seriousness of the situation has dawn on everybody in the maritime industry. But can it be enforced for ship owners and operators to comply? The International Maritime Organisation as regulator is the United Nations agency responsible for developing and adopting measures to improve the safety and security of international shipping and to prevent pollution from ships.
It was in line with the 2015 Conference of Parties, COP 21 Paris agreement on climate change that made member states adopt the strategy with firm commitments to phase out greenhouse gas, GHG emissions from ships.
The world ipso facto would benefit in the areas of health and the environment especially for those living close to ports and major shipping lanes. It was canvassed that the time for sulphur limits implementation be shifted from 2020 to 2025. But experts study revealed that any alteration in implementation date from 2020 could lead to more than 570,000 premature deaths. The belief is that sulphur oxides (SOx) which are emitted from ships are harmful to human health, causing respiratory symptoms and lung diseases.
In the atmosphere, SOx can cause acid rain, which can harm crops, forests and aquatic species, and contributes to the acidification of the oceans. Heavy fuel oil used in ships is a residue from crude oil distillation. The fuel contains sulphur that is emitted when fuel is burnt in the engine of a ship. But who benefits from the bunker market as diesel or gas oil which are lower sulphur fuels replace high sulphur fuel oil?
The new demand from the marine sector and meeting the compliant fuels demand from the shipping sector will bring a big step-change for refiners. Refiners will be challenged to increase global refining run rates to unprecedented levels. The carriage in tanks of non-compliant fuel oil would not be permitted in vessels unless they have Exhaust Gas Cleaning, EGC system fitter or scrubber. But can Exhaust gas cleaning system meet global sulphur cap requirements?
Members of the Clean Shipping Alliance, CSA 2020 last week advised ship-owners installing marine exhaust gas cleaning systems on quality of materials and coatings to optimise EGC safety to avert corrosion problems during operation. What are the implications for global refining? It does open a significant new market for fuel producers. It is an additional shipping demand for diesel and low sulphur vacuum gasoil to meet by snapping up lighter, sweeter crude and producing less fuel oil. Global oil refiners are upgrading processing plants and adjusting operations to raise output of low-sulphur residual fuels and marine gasoil (MGO) to prepare for this stricter shipping fuel standards that kick in next Wednesday.
The world’s largest refiner, Sinopec Corp, has started very low-sulphur fuel oil (VLSFO) output at 10 refineries in China. The company plans total VLSFO capacity of 10 million tonnes a year (about 180,000 bpd) by 2020 and build a fleet of 100 barges over the next three years to supply cleaner fuels to ships. PetroChina has targeted 4 million tonnes of VLSFO in 2020, while Total plans to supply marine fuel in a joint venture with China’s Zhejiang Energy. China Marine Bunker known as Chimbusco, secured at least 4 million tonnes of VLSFO for the fourth quarter of 2019 and the first two quarters of 2020, and has started to supply all major Chinese ports from bonded storage.
What it means is that there would be a shift in bunkering locations starting 2020 based on compliant fuels availability, with Singapore potentially losing some of its market share to China as fuel buyers look for alternative locations that have a surplus of compliant fuels. It was reported last week that the international shipping community announced plans for the creation of the first collaborative shipping Research and Development (R&D) Fund, to eliminate CO2 emissions from international shipping. The proposal includes core funding from shipping companies across the world of about US$5 billion over a 10-year period.