SOx and fuel availability is a delicate balancing act

Malcolm Latarche
Malcolm Latarche

03 February 2017


As things stand in three years’ time, the global Sox cap will be in place and so the time shipowners have for deciding how to meet the rules is rapidly running out. The options are well known and do not need repeating here. The IMO has accepted the CE Delft report that sufficient low sulphur fuel will be available but the reality may not be in line with the report’s predictions. The report suggested that refiners would be investing to meet demand for low sulphur fuel although there was no evidence to support that. Earlier this week Royal Dutch Shell reported its fourth-quarter profits and there are some sobering points contained within them. The company is of course involved in all aspects of oil from exploration to production, refining and sale and so its annual figures reflect the whole industry. For 2016, the upstream, downstream and integrated-gas business units all missed company forecasts. A rising crude price did permit its production side to claw its way back into the black but the company barely made any money from refining and trading: just $77 million, down 90% over 2015. That suggests that refining – for Shell at least – is not a thriving area and that in turn must have implications for the investment that is needed for the situation forecast in the IMO’s report to become reality. It must also make planning to meet the new limit a much more difficult decision for  shipowners. One owner, French container operator CMA CGM, has begun planning and this week signed a three-year memorandum of understanding (MOU) with Total under which the energy producer and provider will supply lower emission fuels, in accordance with new environmental regulations. Under the MOU, Total will become CMA CGM’s multifuel supplier, providing LSFO with a content of 0.5%, HFO with a sulphur content of 3.5% for ships equipped scrubbers and LNG. That is a good plan and of course CMA CGM has the clout to make such deals which will not be possible for every shipowner. However, it is only for three years which means it will expire just around the time the 2020 global cap kicks in. We cannot know what the two parties have decided beyond 2020 and whether or not fuels with 3.5% will still be available. Some analysts have suggested that its continued production will depend upon the uptake of scrubber installation as otherwise no ships (other than those already fitted with a scrubber) would be able to make use of it other than as the base for a blended fuel.