At last, maritime shipping will have to do its bit for cleaner air.
Only a few months ago, it seemed that refineries would struggle to provide adequate supplies of low-sulfur oil for the world’s fleets in time to meet the effective date of new 2020 global fuel restrictions mandated by the International Maritime Organization (IMO). But that fear ebbed as the new year dawned.
In fact, at a recent hearing of the Senate Energy and Natural Resources Committee, the American Fuel and Petrochemical Manufacturers trade association testified that the new maritime fuel, known as very low sulfur fuel oil or VLSFO, was already on tap at leading ports around the world. What’s evident now is that if any supply issues do arise, they’re likely to occur only at smaller facilities.
Shipping lines have three main IMO 2020 options: They can take on board VLSFO (just 0.5% sulfur), fit scrubbers to vessels to enable them to keep on using standard propellant (3.5%), or quite simply do nothing.
Those first two options translate into hefty extra costs.
For one, the VLSFO that the refineries have been busy churning out will carry a stiff premium. BCGOpens a new window estimates the IMO, 2020-related increase in fuel costs to container lines at $10 billion to $12 billion in the first year alone, falling slightly to $7 billion to $8 billion in 2021. And fitting a scrubber? Well, exhaust gas abatement technology, as it’s known, will come in at between $3 million and $5 million per vessel.
Not-So-Green Waters?
The costs, then, are fairly known. Given the size of the hit, noncompliance might seem an attractive financial option and, in fact, there are forecasts that it might run as high as 20% of all vessels. In the United States, where the Trump administration has shown scant regard for environmental protection, might this even be a strategic option?
That would be a high-risk tactic.
While the Environmental Protection Agency has been crippled by the White House and won’t play much of a role here, the more proactive U.S. Coast Guard – the maritime branch of the armed forces, after all – will be watching out for IMO 2020 violations.
In fact, four years ago the US, along with a few other markets, introduced several low-sulfur emission control areas for shipping. And if anyone is looking for precedents, in 2018 the Coast Guard did find a tanker in American waters using non-compliant fuel. The Justice Department prosecuted the case and a court fined the vessel’s owner and operator $1.5 million and a four-year probationary sentence.
Those Sulfurous Penalties
Other jurisdictions will also adopt a tough stance. The Maritime and Port Authority of Singapore, for one, has said that captains and owners of vessels burning high-sulfur fuel will face penalties of up to two years in prison once IMO 2020 kicks in.
But compliance and the use of VLSFO may pose more than a financial risk. According to a Hellenic Shipping NewsOpens a new window report, for example, concerns have arisen that a vessel’s machinery could be adversely affected by the lighter fuel oil and lead to leaks in the engine room. Hence, some shipping companies are resisting the switch to a fuel they believe is unproven and turning instead to low-sulfur marine gasoil (diesel).
There are also issues around scrubbing. Some 3,400 scrubbers are set to be installed this year and next, according to the International Energy Agency, but a number of them use open-loop technology that run seawater and wash sulfur out directly into the oceans.
Singapore, China and Malaysia are among jurisdictions banning the discharge of water from such systems. That may mean some shipping lines have to rejig their new technology to closed-loop variants at yet more expense.
However, while IMO 2020 is clearly ushering in significant disruption and higher costs, the change is inevitable.
Pressure is growing on the supply chain to make operations more sustainable. With the maritime organization citing research that the new sulfur restrictions will prevent 570,000 premature deaths between 2020 and 2025, it really isn’t a move to which shipping lines should be giving a wide berth.