The International Chamber of Shipping (ICS) is calling on the International Maritime Organization (IMO) to accelerate study into the global availability of low sulfur fuel for ships, saying international requirements for ships to switch to such fuel "will have billion dollar implications."
The ICS says it has been "expressing concern for some time about whether sufficient fuel will be available to allow ships to comply with strict IMO regulations aimed at reducing sulfur emissions and whether, as result of insufficient supply, the costs for those ships which are able to obtain the required fuels might be prohibitively expensive."
It is asking the IMO's Marine Environment Protection Committee (MEPC), which meets in October, to begin work on a study "that can consider the impact all of the major changes required by the new MARPOL regime, before it is too late for the oil refining industry to respond and invest."
On August 1, the Coast Guard will begin enforcing the North American
Emission Control Area (ECA), an area along the U.S. and Canada coasts
where carriers will be required to burn a fuel with 1 percent or less
sulfur, compared to the 3.5 percent sulfur content used by ships globally. There are existing ECAs in the Baltic and North Sea.
But the ICS notes a further challenge will come in several years when under IMO
regulations the maximum sulfur content of marine fuel will be lowered
worldwide from 3.5 percent to 0.5 percent in 2020 or 2025 and in the ECAs from 1 percent to 0.1 percent in 2015.
There is already a formal mechanism in MARPOL Annex VI for IMO to complete a review, by 2018, of progress made towards meeting the demand for 0.5 percent sulfur fuel that must be used globally by 2020 or 2025, but ICS said "the enormity of the switch to distillate and its economic impact on shipping should not be underestimated."
ICS Secretary General, Peter Hinchliffe said: “Governments will surely want to avoid any perception that a blind eye has been turned to the practical implementation of the measures as the issue of fuel availability becomes increasingly pressing. It is essential that a global fuel availability study is carried out sufficiently in advance of 2020 in order to give the refiners adequate time to invest and react. The major refinery upgrading required could take a minimum four or five years, perhaps longer, and we fear that completing the study in 2018 would simply be too late.”
“The need to move forward the IMO study is more important than ever now that the European Union has signalled that it will definitely implement the 0.5 percent requirements in 2020, even if the IMO study results suggest, as permitted by MARPOL, that full implementation should be postponed until 2025 to ensure the availability of sufficient quantities of compliant fuel,” said Hinchliffe.
"In its submission to IMO, ICS has suggested that a preliminary IMO study of the availability of compliant fuel, taking into account the introduction of the 0.1 percent sulphur in fuel requirements to be used in the Baltic Sea, North Sea and the North American ECAs in 2015, would provide a suitable test case. Such a study would provide a projection of possible scenarios resulting from the introduction of the 2015 0.1 percent ECA standard, against the background of the world market. This could then be considered in comparison with the real situation encountered in 2015.
Hinchliffe said "when the global requirement to switch to distillate was adopted four years ago, ICS supported the agreed IMO timetable as an acceptable compromise. But if the switch to low sulfur fuel is to be successful, those governments that advocated such ambitious goals need to do everything possible to help ensure that the refineries are able to deliver. We strongly believe this means undertaking the required studies of fuel availability as soon as possible.”
ICS noted fuel is by far the largest operational cost for shipowners and has already increased in price by about 300 percent since 2000. However, the current 50 percent price differential between low sulphur distillate and the residual fuel oil that is currently in use is predicted to increase further if the new demand that will be created by the MARPOL requirements is not matched by increased supply.
Shipowners might be able to meet the requirement using alternate methods such as powering their ships with LNG or using scrubbers, but the ICS noted scrubbers have been predicted to cost in excess of $2 million per engine if fitted on board larger ships and that it is not clear if they will be technically, environmentally, or economically viable for use on a widespread basis before the 2015 or 2020 deadlines. - Chris Dupin