Over 70 delegates turned out in London on 26 September to attend the first in the new series of lunchtime lectures jointly hosted by the Baltic Exchange and the Institute of Chartered Shipbrokers.
Guy Platten, the newly appointed chairman of the International Chamber of Shipping, opened the session after the welcome remarks from the Institute of Chartered Shipbrokers’ director, Julie Lithgow. The conference hall was packed with young brokers and their experienced colleagues looking for valuable insight into this hot topic.
As the industry draws ever nearer to the 2020 deadline, the event provided the perfect forum to assess the change required, industry progress and explore the possible impacts on the shipping markets. John Bradshaw, technical director, International Chamber of Shipping, carefully led the audience through the incoming changes already affecting the shipping industry.
Annex VI of the IMO MARPOL Convention (2008) specifies the sulphur content of marine fuel is reducing from 3.5% to a maximum of 0.5% starting on 01/01/2020 on a worldwide basis. The current transition period is intended to provide the shipping industry with time to implement solutions and be ready for the beginning of a new era.
In view of the global Sulphur Cap, ship operators, bunker suppliers, oil refiners and all parties involved in shipping need to find effective solutions to address these fast and pressing challenges resulting in a prohibition on the carriage for non-compliant fuel.
Mr Bradshaw confirmed that shipowners represented by the International Chamber of Shipping are committed to a successful implementation of the regulation, but also noted – they do not control the fuel supply chain.
He suggested that only new refineries are geared up to provide compliant fuels. Furthermore, the availability of compliant fuels as well as compatible fuels will be one of the main challenges for shipowners preparing for new blends.
The speaker then addressed the other options available such as retrofitting as well as alternative powering options. Sulphur cleaners (scrubbers) offer an effective solution for reducing sulphur emissions as they allow ships to meet IMO regulations while still consuming high sulphur fuels. Although retrofitting is a complicated technical procedure and requires expensive investment with equipment and installation in the order of several millions of US$ depending on the vessel – it could prove an advantageous option since it increases the resale value of the ship. Additionally, scrubbers may strengthen an owners’ position against high fuel oil prices in the future.
Another solution is the use of liquefied natural gas (LNG) as fuel. LNG is an alternative and less expensive fuel with zero sulphur content and excellent combustion properties. Again, substantial investment is required both for ships and transport and storage facilities. Furthermore, there are relatively few LNG terminals in the global supply chain which provide the necessary storage and supply facilities. As a result, few shipowners have chosen this option.
Fuel blends, compliant with the 0.5% sulphur cap may provide a less expensive solution, though this can lead to huge problems both for vessel and crew. Apart from the cost, blending fuels from different sources and with different sulphur content levels can cause destabilisation of the final combustion, mechanical problems and serious effects on the safety of the ship.
Overall, as the transition period comes to its end in 18 months, it seems that the involved parties are not well prepared to face the upcoming changes and strict regulations. New legislation, technical issues, fuel switchover problems, fuel availability and increased cost of bunkers are some of the main issues that ship operators and bunker suppliers will face in the near future.
A lively Q&A followed the lecture, with questions and discussion on LNG demand forecasts and the influence on prices; whether the cost of scrubbers will decrease due to larger scale take-up; the penalties for non-compliance; the likelihood of another delay/deferment to the implementation deadline; the potential impact on the scrappage market.