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Shipping faces enormous challenges ahead of global 0.5% sulphur cap

Shipping faces enormous challenges ahead of global 0.5% sulphur cap
The shipping industry has to be prepared for challenges on an unprecedented scale ahead of IMO’s strictest global fuel sulphur content limit, and a clearer indication on the direction of that regulation will be heard in October this year, according to the International Bunker Industry Association (IBIA).

IBIA held a forum at SMM 2016 on Wednesday, entitled ‘Be prepared for the challenges lying ahead’, and examined pressing industry issues as the decision on the timing of the global 0.5% sulphur cap draws closer.

Unni Einemo, IMO representative, media and communications manager, IBIA, said the IMO is expected to decide in October this year at the upcoming MEPC meeting on the enforcement year for the global 0.5% fuel sulphur content cap. It will be either 2020 or 2025.

A decision on the enforcement year was originally due only in 2018, but it has been deemed too late to let the industry know by then due to the enormous and complex scale of fuel changing requirements that need to take place for compliance.

Based on a CE Delft report, which the MEPC will supposedly take it seriously, it has recommended for a 2020 enforcement year instead of 2025. CE Delft is an independent research and consultancy organisation specialised in developing innovative solutions to environmental problems.

Einemo warned that the global sulphur regulation is “not step changes but brutal changes”, requiring “paradigm shifts on ship engines” that are designed to run on heavy fuel oil. If IMO decides to go with the year 2020, it would mean a fuel switch volume of 4m barrels per day “from the first day of 2020”, she said.

“We are looking at a virtually overnight shift from 3.5% fuel sulphur content to 0.5%. There is a real risk that the change would cause a period of severe prodict shortages and inflated prices,” she said.

Moreover, the production and supply of up to 3.5% sulphur marine fuels would need to continue until the day before the 0.5% requirement kicks in, and immediately demand for this higher sulphur fuel will shrink dramatically the day after, creating a never before known situation of severe supply/demand mismatch.

“The transition from 3.5% to 0.5% is not as easy as flicking a switch,” Einemo said, highlighting the impossible undertaking for global refining to switch production overnight, the need for huge logistics involving transport between refineries, storage and delivery vessels, and the massive work for ships to clean out fuel systems to avoid sulphur contamination.

If the global sulphur cap regulation is put off until 2025, there will be more lead time for refinery upgrades but transitional challenges remain. “We also know that the EU has every intention to go ahead with the 0.5% limit (outside ECAs) in 2020,” Einemo said.

The bunker association had repeatedly warned that the transition to move the global bunker consumption and supply from mainly residual fuel to 0.5% sulphur fuels, which are expected to be principally distillates, simply cannot happen overnight.

To help ease the transition to the global 0.5% fuel sulphur cap, IBIA has proposed a number of strategies, and one of them is the phasing in of the 0.5% sulphur limit for ships sailing in the Exclusive Economic Zone (EZZ) of Annex VI signatory countries, region by region and over a period rather than an instant change on a specific date so as too alleviate market distortion.

Other strategies include allowing exemptions for ships with contracts in place to fit abatement technology, confirming the issuance and acceptance of fuel oil not availability notices (FONARs) permitted under Annex VI, and allowing a period of adaption and monitoring before requiring and enforcing compliance.