The International Maritime Organization (IMO) may move up the global 0.5 percent sulfur limit’s start date to 2020, raising questions about fuel cost and supply.
The IMO will decide in 2018 whether the new sulfur fuel cap for ships will be moved up to 2020 from an original target date of 2025.
The cap, aimed at reducing emissions of sulfur dioxide in coastal regions and ports, mandates that ships either use clean distillate marine gas oil or an emissions scrubbing system to meet the low-sulfur fuel requirements.
The major issues in meeting the cap for the U.S. maritime industry are adequate fuel supply and increased fuel costs.
Meeting the 0.5 percent sulfur fuel standard should not present a difficult challenge to the U.S. maritime industry because ships that travel in the U.S. Emission Control Area (ECA) must already meet a .01 percent standard.
“We already have to meet the ultra low-sulfur .01 percent here now, so we’re in pretty good shape,” said Joe Cox, president and chief executive of the Chamber of Shipping of America. “But as far as U.S. vessels are concerned, anyone that is staying within that ECA has to use that compliant fuel for the full time they’re there, so there is a cost issue for American vessels.”
In early April, the Bunkerworld Index price for high-sulfur fuel in Houston was $450 per ton, and low-sulfur marine gas oil was $590.50 per ton. In Rotterdam, the price was $308 for high-sulfur fuel and $513 for the marine gas oil.
Last year, Maersk Line Chief Executive Soren Skou said that lower sulfur fuel standards would increase the carrier’s bunker cost by an estimated $200 million a year, and that costs would likely be passed on to customers as a surcharge.
Cox said the cost demands are not onerous because they apply to all operators, so the costs incurred are “competitively neutral.” However, that neutrality will depend on robust enforcement, he said.
“If there is adequate enforcement making sure there are no cheaters … then I think you will be OK, because your competition knows you will have to comply,” Cox said.
Currently, the U.S. has a statutory maximum penalty of $25,000 per violation per day.
Compliance levels may be lower globally.
“In Europe they inspect on average one out of every 1,000 vessels,” Cox said. “So, if you have a one in 1,000 chance of getting caught, you might think you can get away with it.”
Some operators may opt to use scrubbers with current fuel to comply with the new standard. Cox believes that international operators may be keen on scrubbers. However, the scrubbers bring with them the issue of waste. “You can’t put sulfur or scrubber waste into the ocean,” he said.
Supply of the ultra low-sulfur fuel is not expected to be an issue on a regional level, Cox said. It is too early to tell if supply will meet demand globally. “There could be major problems,” he said.
Demand will drive supply, said Carleen Lyden-Kluss, executive director of the North American Marine Environment Protection Association.
“What we’re seeing — if .01 percent sulfur is any indication — is if the demand is there, the fuel will be supplied,” Lyden-Kluss said.
But that depends on the willingness of refiners to make necessary, and costly, upgrades by the expected 2020 deadline.
“What I heard (in March) from Shell is that multibillion-dollar investments would have to be made in their cracking refinery process,” she said.