The 2020 International Maritime Organization (IMO) Fuel Sulphur Regulation

The 2020 International Maritime Organization (IMO) Fuel Sulphur Regulation:

The International Maritime Organization (IMO) enforced a new 0.5% global sulphur cap on fuel content from 1 January 2020, lowering from the present 3.5% limit. The global fuel sulphur cap is part of the IMO’s response to heightening environmental concerns, contributed in part by harmful emissions from ships.

The more stringent sulphur regulation has led to shipowners and operators mulling over which options they should choose in order to comply with the IMO regulation, and refiners considering whether to produce more low-sulphur fuel to meet possibly higher demand, as both parties anticipate an unprecedented change in the marine fuels supply landscape.

The issue with the 0.5% sulphur cap regulation is that it has turned into a problem for refiners (the fuel suppliers) and shipowners (the fuel buyers), caught in a quandary whereby suppliers are unable to commit on how much to produce as buyers do not know how much is needed, vice versa.

The shipping industry, the one on the receiving end of the IMO regulation, will have to deal with the upcoming global 0.5% sulphur cap. This will be virtually overnight shift from 3.5% fuel sulphur content to 0.5%. There is a real risk that the change would cause a period of severe product shortages and inflated prices,” Moreover, the production and supply of up to 3.5% sulphur marine fuels would need to continue until the day before the 0.5% requirement kicks in, and immediately demand for Heavy Fuel Oil will shrink dramatically the day after, creating a never before known situation of severe supply/demand mismatch.

The refiners, though they are not regulated by IMO, cannot ignore the reality as they have a commercial interest to cater to market needs through changes to production configuration so as to maximise margins. It is without doubt that the 0.5% sulphur rule will have huge implications for the global refining sector in terms of refinery configuration and operations. Simple refineries that produce a substantial share of their crude run into Heavy Fuel Oil may face margins pressure, while complex refineries may potentially boost margins with a larger production of low-sulphur products.

The options with the ship owners in order to comply with the IMO regulations.. First, ship owners can install exhaust gas cleaning systems on their ships. Second, owners can simply buy compliant fuels at higher costs. Third, ships can run on the clean gas LNG as fuel.

The use of exhaust gas cleaning systems, also known as scrubbers, is a commercially available option for the shipping industry. Ships installed with scrubbers mean they can continue to burn high-sulphur bunker fuel from 2020 and comply with the 0.5% sulphur limit.

The most straightforward way for ships is to simply switch to burning Low Sulphur Fuel Oil to meet IMO’s sulphur limits. The operators will have to either absorb the cost of the higher fuels or pass it on to their customers whenever possible.

The viability for ships to burn LNG as fuel depends very much on the availability of a worldwide network of LNG bunkering infrastructure, which to-date is severely underdeveloped. Global LNG bunkering infrastructure is considered to be at an infant stage today, as most LNG-powered ships are mainly coastal vessels and major bunkering ports in the world have yet to develop full-scale LNG bunkering facilities. Another dampener is the retrofitting of ships to burn LNG as it is a sophisticated, complex operation that require modification of existing engines or addition of gas tanks, as well as the huge cost of fitting LNG tanks and gas piping systems.

The shipping industry is faced with several options ahead of 2020 with no clear solution. However need to comply before the deadline.

Role of Third Party Inspection Agency

This will be predominant due to increase in testing requirements in order to meet regulatory norms as well testing of the disputed samples. TUV India will be equipped with laboratory facility for testing.