The International Maritime Organization is putting into place worldwide low-sulphur rules for shipping fuel. It is called IMO 202 and these low sulphur rules take effect 1 January, 2020.
The new rules mandate that sulphur will not make up more than .5% of fuel burned by ocean going ships. Presently, ships can burn fuel that contains sulphur as high as 3.5%. The IMO says that by cutting the sulphur content so much, they’ll save about half a million lives worldwide in 5 years (2020-2025). The number of lives affected is so high not just because of the number of ships on the seas, but also because of the absolutely huge engines that burn the fuel that powers the ships.
The effect on the shipping industry is not so sanguine. Estimates are that this new fuel will cost about 40-60 per cent more than present fuel does. Considering that shipping costs are a function of just two factors and one of which is fuel, the cost to ship could increase by about the same percentage. Needless to say, the ship owners are worried and anxious about how the consumer will react to these added costs.
For the fuel industry market, they worry about a glut of high sulphur fuel. Essentially, at the stroke of midnight on December 31, 2019, an entire customer base is going to be erased. And worse yet, there are fears that come morning on January 1st, 2020, there simply will not be enough low sulphur fuel to meet market demands.
Frequently Asked Questions
- What do ship owners need to do to meet the new IMO regulations?
Their options are 3, basically:
- Switch to clean liquefied natural gas
- Continue running on fuel oil, but ensure that its sulphur content is below .5%
- Install scrubbers on their ships’ engines. Scrubbers are exhaust gas cleaning systems that can reduce the amount of sulphur oxide a ship emits to below 5%. They work well for generator and boiler exhaust gases too.
- How will the new regulations impact fuel trade and consumerism?
Fuel producers will most likely invest in new blends of fuel oil; ready to use blends that are already compliant with the IMO specifications. They can do that by, for example, diluting heavy fuel oil (high sulphur content) with gas oil (extremely low sulphur content) to create a blended oil of the required sulphur content. The new blend might be a little bit pricier than the heavy fuel oil that modern ships use.
- Does the new regulation apply in the previously established emission control areas?
No. They will not be affected by the new IMO sulphur regulation. The sulphur limit for these ships is 0.10% m/m, which is way lower than the one recently implemented by IMO. These emission control areas include the North American, the North Sea, the Baltic Sea, and the United States Caribbean Sea areas.
- Does the low sulphur limit regulation apply to domestic voyage?
Yes. The regulation applies to ships on both domestic and international voyages. That is for as long as, at any point of the voyage, the ship enters the waters of a country that subscribes to the MARPOL Annex. This is according to MARPOL Annex VI, regulation 14.
- Does the new rule apply to small ships too?
Yes. According to MARPOL Annex VI, all ships, size notwithstanding, have to meet the .50% sulphur limit.
For some of the commercial (as opposed to retail) buyers of the freight, i.e. the project freight forwarders and their customers, the expectations are just as unclear as for the other parties. How much will shipping cost anyway? When exactly will new sulphur fuel be used? As to the former, major projects are costed out months in advance. No one can guarantee shipping costs when fuel markets are volatile. But most parties have grown to expect some kind of indication for freight costs 6 months out, all things being equal. This assumption is being challenged by these low sulphur rules and the uncertainties they pose. With respect to the question of when the actual rules take effect, considering that ships must burn the new clean fuel as of 12:00:01 AM January 1st, their bunkers must be replaced sometime in advance of that. Texas International Freight is being advised the de facto start date of the new low sulphur IMO 2020 rules is 1 November, when ships will start fuelling with the new product.