Slow scrubber take-up could spell end of HFO

Malcolm Latarche
Malcolm Latarche

26 August 2016


Within a month the IMO will probably be announcing the result of its review into the availability of low sulphur fuels. Under MARPOL Annex VI, the permitted sulphur levels in fuels must be reduced in accordance with a defined timetable. All but one of the dates in the timetable has now passed with the last of those being the reduction in SECAs to 0.1% as from 1 January 2015. The final reduction to come is the cut in the global cap from 3.5% to 0.5%. Regulation 14.8 of MARPOL Annex VI requires that a review of the standard laid down in regulation 14.1.3, namely the 0.50% m/m maximum sulphur content fuel oil on and after 1 January 2020, shall be completed by 2018 to determine the availability of fuel oil for ships to comply. If it is decided that the availability of fuel oil with a 0.5% content is insufficient, the date for reduction is put back five years to 2025. A decision was taken at MEPC 68 in November 2015 to establish a steering committee and to appoint Netherlands-based CE Delft to author a report to be presented and discussed at MEPC 70 in October this year. A timeline of events was agreed and assuming that the dates have been adhered to most of those attending MEPC 70 will have seen the final report in late August. There will however be a consideration of the report at MEPC 70 and the final decision as to the date of the reduction will be made then and presumably disseminated to a waiting world. In June this year the International Bunker Industry Association (IBIA), which was one of several NGOs on the steering committee, issued a statement advising its members of the result of a survey on the potential impact of the shift to the lower limit. IBIA, whose members include marine fuel buyers, suppliers and traders, is concerned that global refining and shipping will struggle to cope, and has outlined a series of options that it believes could facilitate a smoother transition to a lower sulphur cap and has asked its members if they want to raise the issues at MEPC 70. One of the scenarios envisaged may cause consternation among the growing ranks of scrubber makers. IBIA says uptake of abatement technology is expected to allow a portion of the world fleet to continue to use HFO with higher sulphur content both in ECAs and globally. However, if fuel suppliers expect the demand for HFO to shrink dramatically, it could become a niche market with fewer suppliers willing to offer it, and there is a risk that supply of HFO will begin to disappear just as more ships are installing scrubbers. While the disappearance of HFO would quite clearly solve the issue of SOx emission compliance, it is almost certain that it would also result in more expensive fuels for the shipping industry. Because of the fall in crude prices, the current price of bunkers is relatively low compared to just a few years ago so it might be argued that having been able to live with higher prices through to the end of 2014, shipping can afford to make use of higher cost fuels in the future. It is a persuasive argument were it not for the fact that freight rates have dropped significantly because of a worsening economic situation that is in part the cause of the fall in crude prices. What is becoming clear is that the future 0.5% global cap, which was always going to present problems for shipping, is now very close. The industry was a little behind the curve reacting to the 2015 ECA reduction to 0.1% sulphur levels believing that concessions would be given at the last moment which turned out not to be the case. The ECA cut affected only some ships but the next change will hit all except those ships that trade exclusively in ECAs. Although their minds may be occupied in dealing with the issue of ballast treatment, shipowners need to be mindful of the coming change and ready to meet the challenge. And owners should be aware that unless the IMO is prepared to listen to proposals to phase in the reduction, then there will be no roll out programme and no possibility to secure extra time by way of manipulating survey and certification dates as there has been with ballast water. Once set, the date for the reduction will apply to all ships instantly or at the very next bunkering at the latest. Image courtesy of DFDS/