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2020 Sulphur Cap

Well, it is March 2019 almost 9 months left for this new regulation to come to force and since this website live now this is the hottest topic to cover. Currently, all ships use residual fuel (bunker) for power and propulsion. Crude oil undergoes distillation and the residue left is the bunker fuel for the ship. Crude oil contents sulphur in it and residual fuel too contains sulphur as it is a derivative of crude oil. Bunker on combustion releases SOx into the atmosphere which eventually leads to health issues related to respiratory system. MARPOL Annex VI came to force on 19th May 2005 and since then IMO’s aim is to curb SOx emissions.

The following table will quickly recap the Sulphur % (expressed in m/m%) is as follows.

ECA– Emission Control Areas

Outside an ECA established to limit SOx and particulate matter emissionsInside an ECA established to limit SOx and particulate matter emissions
4.50% m/m prior to 1st January 20121.50% m/m prior to 1st July 2010
3.50% m/m on and after 1st January 20121.00% m/m on and after 1st July 2010
0.50% m/m on and after 1st January 20200.10% m/m on and after 1st January 2015

From 1st January 2020, the sulphur content in the bunker used on board ships operating outside the Emission Control Areas will be reduced to 0.50% m/m. Less amount of sulphur means less amount of SOx generation and a cleaner and healthier environment.

What must ships do to meet the new IMO regulations?

The easiest option for ships to inherit bunker with a sulphur content of ≤ 0.5% (m/m). Another alternative for ship owners is the installation of a scrubber tower capable of reducing sulphur emissions to 0.5% or less. All these options sound simple but …

Things to keep in mind

  • Tank cleaning after switching to new fuels time and cost involved.
  • De-bunkering of non-compliant and residual fuel before the carriage ban.
  • Having a minimum quantity of 0.5% fuel on board by the end of December 2019
  • Compatibility of the compliant fuel with existing machinery.
  • Availability of compliant fuel?
  • Monitoring and logging emissions.
  • Drydock slots availability for retrofitting of scrubber towers.
  • Recent ban by few flag states for use of open loop scrubbers.
  • Chartering issues related to bunkering.
  • Opt-in for alternative fuels such as LNG etc.
  • Insurance issues.

Tank Cleaning:

Existing bunker tanks require cleaning prior to the deadline. Then the next issue arises of which class approved method of tank cleaning to implement?  Ships employed on a shorter trade route will face issues involving less to no amount of time for conversion of existing bunker tanks to low sulphur bunker tanks. Time and cost involved in bunker tank conversion is a great concern to ship owners.

Refineries:

A major question arising with respect to the availability of compliant fuel is, Can the refineries meet the demands of shipping companies starting from Q4 of 2019? In order to stay compliant with the new regulations, the demand for fuel with ≤ 0.5% will start rising by the fourth quarter of this year. Refineries may produce compliant fuel by blending different % of sulphur containing fuels. Properties of the fuel are enhanced by adding additives. These blended fuels and existing propulsion systems may give rise to compatibility issues with existing machinery. From what I read on the IMO website the refineries are capable of producing sufficient quantities of marine fuels of 0.5% & 0.1% sulphur grades to meet the demands of the maritime sector. Check the complete study conducted by IMO, download it from here.

Scrubber Towers

Installation of scrubbers is another viable solution involving retrofitting of scrubber towers. This retrofitting involves ship going to dry-docks. Availability of slots in drydock is limited. The upfront cost of installation of a scrubber tower is steep but the cost saving with cheaper existing fuel option, in the long run, reaps the benefits. As of now, a total of 10 countries have banned an open loop type of scrubbers. Few countries to mention are China, coastal part of ECA, Singapore. Singapore’s decision of banning open loop scrubber tower have huge impacts on the global shipping industry. Singapore though being a minuscule country is a big shipping hub. The ban results in ships requiring to store 3 grades of fuel, and this also reduces the cost-effectiveness the scrubber tower.

Chartering Issues

The main chartering related issue arises during the transition period, who will bear the responsibility and the cost in the charter party agreements. The 2020 Sulphur cap will result in the increase of prices for Low Sulphur Fuels, a question arises who will have to pay for the same? Or the resultant the price rise will be borne by the consumers altogether. The scrubber installations initial cost borne by the owners may trickle down to the charterer and thus to the end consumers. Another issue rising is that of de-bunkering of remaining fuel onboard, if any, and negotiation of non-compliant fuel at what price. Currently, BIMCO has published 2 Sulphur 2020 Clauses to tackle the charter party issues.

Alternative Fuel sources:

A lot of research is ongoing in search of an alternative to fossil fuels. With the new regulation just around the corner, there is not enough time left to try new alternative fuels. LNG can be a fuel source but world-wide availability of the same in adequate quantities to quench the maritime sector alone is questionable. The alternative fuel source in a new ship is a viable option but in existing ship modifying the power & propulsion plant is not economical.

Insurance:

Issues of non-compliance with the regulation related to emissions would breach the law, hence deeming the ship unseaworthy. The non-compliance with the law results in withdrawal of class. A ship without a class cannot make any insurance related claims. Insurance like Hull and Machinery and/or Protection and Indemnity will not be entitled to any liability arising from the above issues.

Summary:

The new Sulphur 2020 cap is not just a shipping problem. Overall trade is affected by this new regulation. Shipping Industry is proposed with several options towards 2020 Sulphur cap, but there is no proper solution for the same. The new 2020 Sulphur cap gives rise to a number of contractual and practical issues between owners, charters and charter parties. Issues resulting in claims for non-compliant fuel, off-spec bunker and penalties, deviation claims, claims for unseaworthiness of the ship are a few to name. IMO has released a FAQ section to clarify few of most asked questions.

Do you agree with my short description of the upcoming changes? Let’s discuss more in comments down below

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