Six months after the International Maritime Organization decided to cut global marine fuel sulfur limits sharply in 2020, the bunker industry is still discussing its objections to the decision. Little clarity has yet emerged on how shipowners are likely to respond to the change.
On October 27, the IMO decided to cut bunker sulfur limits from 3.5% to 0.5% from the start of 2020, a move which will prompt shipowners either to start buying more expensive, cleaner fuels or invest in emissions-cleaning technology on board their vessels.
At the 38th annual International Bunker Conference on a cruise ship off Oslo last week, bunker industry veterans gathered to discuss how the coming regulatory changes will affect their sector.
The main consensus reached was on the uncertainty surrounding what happens next.
"In three years' time, we all know it's not going to be working as well as we hope," Robin Meech, managing director of Marine and Energy Consulting, said at the conference. "The decision makers are uncertain, and we don't actually have to do anything."
Meech expects there to be insufficient 0.5% sulfur bunkers available in 2020 to meet the new demand, driving widespread non-compliance with the IMO regulations.
According to his forecasts just 460 vessels in the global fleet had fitted emissions-cleaning scrubbers allowing them to continue using fuel oil by the end of 2016, equivalent to about 4 million mt/year of demand.
Inertia among shipowners looking at how to respond to the IMO's decision was a central concern of the conference.
The shipping industry is in consolidation and in many cases struggling to access credit, meaning that most are not in a rush to invest the $3 million to $5 million per vessel needed to install a scrubber.
Meech forecasts that 0.5% sulfur bunker prices will average around $240/mt higher than high sulfur fuel oil in 2020, with that differential widening to as much as $400/mt by 2022 before narrowing again to $135/mt by 2025.
This differential represents the saving a shipowner could make by installing a scrubber and continuing to buy fuel oil, and such wide variation in it over time will make it harder for them to make an investment decision.
Another potential stumbling block for scrubbers is the availability of high sulfur fuel oil after 2020, according to Unni Einemo, IMO representative for industry body the International Bunker Industry Association.
As fuel oil for vessels with scrubbers fitted will be more of a niche market from 2020 onwards, some smaller ports may not bother to keep regular supplies of it, she said -- or the lack of competition among suppliers may lead to higher prices.
Shipowners are likely to wait as long as possible to take a decision about the sulfur cap, Einemo said.
"You're looking at virtually an overnight switch," she added. "That's pretty problematic, this is not as easy as flicking a switch."
More uncertainty is being added by the lack of a concrete enforcement system worldwide for the IMO's sulfur cap. Eirik Nyhus, director of environment and regulatory affairs at certification body DNV GL, said that outside of North America, the EU, Australia and New Zealand there may be little in the way of reliable enforcement regimes.
"Nothing's going to happen ahead of 2020," he said about enforcement measures. "We'll have some early movers, but nothing from the rest of the world."
"We are establishing a system where it pays to cheat," he added. "That's going to be an increasing problem unless we address it."
In the high seas enforcement of the sulfur cap will be the responsibility of the state to which each vessel is registered, and so far there have been no signs that governments are looking to impose strict enforcement regimes outside of their own territorial waters.
The potential for non-compliance, along with shipowners' reluctance to take a decision on how they will cope with the tighter global sulfur cap, has left some in the bunker industry complacent about the changes coming in 2020, according to John Stirling, quality manager at World Fuel Services.
"Some people are still saying that 2020 isn't real," he told the conference. "It is -- we need to get our heads around that." - Platts -