The decision to lower the global cap on the amount of sulfur in marine fuel from 3.5 percent to 0.5 percent in 2020 could cause shipping costs to rise drastically.
The International Maritime Organization’s (IMO) Marine Environmental Protection Committee (MEPC) will lower the global cap on the amount of sulfur in marine fuel from 3.5 percent to 0.5 percent in 2020.
The London-based IMO, an arm of the United Nations, made the announcement in a brief tweet earlier today.
The IMO could have deferred the cap until 2025, but chose not to.
Shipping costs could rise dramatically as a result.
World Shipping Council (WSC) President and CEO John Butler said in an emailed statement to American Shipper Thursday the container shipping industry “has known for some time that the regulation would go into effect either in 2020 or in 2025, so the IMO’s decision this week removes any uncertainty about when the rule will enter into force. Given the tremendous additional cost that this measure will add to supply chains, we look forward to working with the IMO to ensure that the low-sulfur fuel requirement is implemented in a consistent way worldwide so that we maintain a level commercial playing field.”
Earlier this year, Butler told American Shipper in an interview that costs could easily amount to hundreds of dollars per container, which shipping companies are likely to pass on to customers.
The International Transport Forum of the Organization for Economic Cooperation and Development (OECD) said in May the cap planned for 2020 will have a significant effect on shipping costs. “Our calculations show that they could increase between 20 percent and 85 percent, depending on the assumptions regarding speed, fuel price and ship size,” the OECD said. “The relatively large margin is due largely to the uncertainty surrounding the availability of low-sulfur ship fuel. The 2020 requirements could add annual total costs in the order of $5 billion to $30 billion for the container shipping industry.”
In 2008, MEPC adopted revisions to Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL) aimed at progressively reducing pollutants such as sulfur oxides (SOx), nitrogen oxides (NOx) and particulate matter.
In 2012, the global cap on marine fuel sulfur content was cut to 3.5 percent from 4.5 percent.
The IMO also created “emission control areas (ECAs),” which extend 200 miles from most of the U.S. and Canadian coast, as well as the North Sea, and Baltic Sea, where the sulfur content of fuel was capped at 1 percent on July 1, 2010, then lowered to 0.1 percent on Jan. 1, 2015.
Alternatively, ships can use higher sulfur fuel but use scrubbers to remove sulfur from exhaust.
The rule has driven up the cost of operating ships in ECAs substantially, especially for ships that spend a lot of time in the regulated waters. Butler said by national law, China has also created some ECAs.
There were questions about whether refiners can make enough low sulfur fuel, and MEPC ordered a study from Netherlands-based CE Delft.
According to this study, the refinery sector has the capability to supply adequate amounts of marine fuels with a sulfur content of 0.5 percent, while also meeting demand for non-marine fuels.
A very different conclusion came from a study sponsored by several petroleum industry groups, as well as the Baltic and International Maritime Council (BIMCO), which was conducted by Ensys Energy & Systems Inc. and Navigistics Consulting.
According to this study, a full-on switch to the global sulfur standard in January 2020 does not appear to be workable.
“The uptake of scrubbers will be limited by end 2019 such that the required ‘switch volume’ from high sulfur to global fuel standard is estimated as 3.8 million barrels per day (195 million tons per annum) plus and minus a range of uncertainty,” the study said.
“Based on this outlook, the global refining industry will lack sufficient capacity in one critical respect in 2020, namely sulfur plant, and to a lesser degree hydrogen plant (both vital to the ability to desulfurize refinery streams), to fully respond to the global sulfur cap.”
In addition to raising serious questions about adequate supply, a model used by EnSys/Navigistics is projecting an increase in open market prices of 11-23 percent across all products, in all regions worldwide, and not just across marine fuels. This would amount to between $350 billion and $700 billion per year.
IMO reaches decision on sulfur cap
