2020 chaos and confusion as waters get murkier

Malcolm Latarche
Malcolm Latarche
ShipInsight

23 May 2018


Earlier this week, the ICS issued a statement saying that the principal conclusion of its AGM held in Hong Kong last week was that serious consequences would result from the chaos and confusion that will come from the 2020 sulphur cap reduction unless the IMO urgently resolved some serious issues.

Confused

It seems a little odd for the ICS to be warning about the chaos and confusion so soon after pushing hard for a ban on the carriage of non-compliant fuels that the IMO duly adopted at the last MEPC meeting in April. Then the worry was that compliant shipowners would be at a competitive disadvantage to those that might take advantage of the lack of compliant fuel to continue to run on ordinary HFO. Now it seems the realisation that not enough fuel will be available at a reasonable price is beginning to dawn.

It is puzzling why that might be because it was after all common knowledge that the refining industry is well behind the game in being able to produce sufficient low-sulphur fuels and while there will be some very good blended fuels available, some of those fuels that will be loaded on ships are likely to cause problems with engine operations.

Speaking from Hong Kong, ICS Chairman Esben Poulsson said, ‘The shipping industry fully supports the IMO global sulphur cap and the positive environmental benefits it will bring and is ready to accept the significant increase in fuel costs that will result. But unless a number of serious issues are satisfactorily addressed by governments within the next few months, the smooth flow of maritime trade could be dangerously impeded’.

He went on to say that ‘Governments, oil refiners and charterers of ships responsible for meeting the cost of bunkers all need to understand that ships will need to start purchasing compliant fuels several months in advance of 1 January 2020. But at the moment no one knows what types of fuel will be available or at what price, specification or in what quantity. Unless everyone gets to grips with this quickly we could be faced with an unholy mess with ships and cargo being stuck in port.’

But looking at the situation dispassionately, the question that needs to be asked is why it is incumbent on the refiners to produce products to meet regulations that they had no part in formulating? After all it will cost them billions of dollars in investments and all the while the IMO, with the implied support of the shipping industry (the ICS AGM endorsed an ambitious programme to decarbonise shipping) is embarking on a course that could see those investments made obsolete within a few decades.

By and large, shipowners have done little to help themselves in removing the threat of chaos and confusion, some have done what they could to ensure access to low sulphur fuels although the ICS is quite correct in asserting that the problem for tramp operators is more difficult, but many of those that could have looked at compliant fuels or installing scrubbers have failed to do so giving a variety of reasons of which future regulation is the most often given.

It is highly likely that there will be future legislation around the issue of scrubber wash water that might impact on their long-term future. But given the speed at which the IMO processes move, any ban is likely much further into the future than the payback period if installing a scrubber now or even within a time after the 2020 deadline. Even if only a single generation of ships could profit from fitting a scrubber and then not for the whole of their lives, surely the quick payback period would make it an attractive proposition albeit an expensive ‘temporary’ modification.

The question of financing a scrubber is surely one that could be solved, especially for vessels in long term time charters where the charterer might be persuaded to aid in the outlay in return for a commensurate freight reduction. Apparently, Glencore and BP are in the business of doing so and even Goldman Sachs is reportedly becoming interested in providing finance.

The other option of running on alternative fuels has been made less clear since the last MEPC with some environmental organisations and others pointing out that even with the claimed reductions of CO2 possible using LNG for example, does not tally with the IMO’s plan for decarbonisation. This point is apparently being addressed by proponents of LNG. Few would argue that LNG does indeed make compliance with the SOx rules easy but the question of greenhouse gases is now becoming the hot topic.

Peter Keller, Chairman of SEA/LNG writing in the organisation’s blog announced an initiative aimed at establishing the facts of LNG’s greenhouse gas performance. ‘Certainly. there are still many open and important questions relating to the global warming implications of methane emissions in natural gas production and transportation as well as methane slippage in marine engines.

In collaboration with partners such as the Society for Gas as a Marine Fuel (SGMF), SEA\LNG is sponsoring a comprehensive, academically validated analysis which will compare full lifecycle, well-to-wake GHG emissions of LNG-fuelled propulsion systems with IMO 2020 compliant oil-based solutions such as low sulphur fuels and high sulphur fuels with exhaust abatement; for example, scrubbers. We will also examine other alternative fuels that may not be currently viable or even commercially available to get a complete picture of all alternatives. This will be important work to help create factual, data-based answers to the questions before the industry. Too often, we see comments or reports that claim to be neutral but in reality, are not factually based. It is our clear intention to work with real data and facts’.

It is good that SEA/LNG is prepared to gather facts to support its case although a little unfortunate perhaps that at this stage the prospect of a new analysis may cause some shipowners to further prevaricate and delay making the decisions they know they must come to quickly.