By Lesley Bankes-Hughes— However, the transition to a 0.5% global sulphur cap ‘could take two to three years and will cost us all money,’ notes Robin Meech, MD of Marine & Energy Consulting.
Addressing delegates on the opening day of the Middle East Bunkering Convention in Dubai, Meech gave a useful overview of available options for 2020 compliance, likely challenges for the bunker market, and the possible impact on future bunker prices.
He suggested that the economics of fitting scrubbers to vessels is becoming increasingly attractive with a likely two-year return on investment for newbuilds and a three-year period for retrofits. Another recent development which may also give further impetus to the installation of scrubbers is the news that China is about to move into scrubber production, which may well see cheaper variants of this technology coming to the market.
At the end of 2016, some 500 scrubbers had been installed, resulting in the removal of some 4 million tons of sulphur. According to consultant CE Delft’s figures, by 2020 some 3,800 scrubbers could be in service, while refining expert EnSys sets the level at 4,600 scrubbers. Meech’s own estimate comes in between these forecasts at around 3,200, rising to a potential 22,000 scrubbers by 2030.
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In the run-up to 2020, he pointed to the key questions which the shipping and bunker markets are facing: what will be the uptake of scrubbers; how will the refining sector respond to the 0.5% sulphur limit in terms of new products and also high sulphur fuel and distillate availability; how will owners and suppliers undertake their ‘transition planning’; and what will the levels of regulatory compliance be (and Meech cautioned that compliance levels ‘may be lower than hoped for).
With less than three years to go until the implementation of the global sulphur cap, many in the shipping sector have been hoping for a step-by-step approach to the introduction of the 0.5% sulphur limit, but Meech pointed out that ‘there is no hint of any delay at the International Maritime Organization (IMO)’.
Without doubt, the shipping industry should brace itself for a period of upheaval, both up to and post-2020. Meech noted that the switch to the use of 0.1% sulphur fuel in emission control areas (ECA) in 2015 had removed 0.25 million tons of sulphur from the marine fuel supply. However, the step change in 2020 will be considerably larger, with over 15 times more sulphur (or 4.2 million) tons to be extracted from the bunker supply chain.
There will be an accelerated move to LNG-fuelled shipping post-2020 but Meech suggested its impact in the global fuel ‘mix’ may be less than some commentators have been predicting. While LNG prices are at possible 20-year low, he noted that LNG-fuelled vessels currently account for around 2% of the global fleet, and this will rise to about 4% by 2020.
He pointed to a ‘very big’ price differential between high sulphur fuel oil and distillate immediately after 2019. At the end of 2016, the differential was around $170 a tonne but this could rise to $240 a tonne after 2020 followed by a potential spike of $450 a tonne.
Compliance with the 0.5% sulphur cap (and enforcement of it) is very much an unknown, acknowledged Meech. Flag States will be tasked with enforcement post 2020, but Meech pointed out that of the 87 states who are signatories to MARPOL Annex VI, 35 are open registries. Of these, 13 are signatories and 22 are not, which raises the question of the enforcement obligations placed by hese entities.
On the bunker supply side post-2020, Meech suggested some of the questions that suppliers are going to have to decide are when and where to offer 0.5% sulphur fuel, whether they should opt to devise new blends, and whether to stay in the residual market.
