28 / 100
August
2019
HYDROCARBON
ENGINEERING
26
regardless of whether it is being used. This amendment
takes effect in March 2020, presumably to allow a
reasonable period for ships to bring their holds into
compliance.
Option three – break the rules
It is important to note that the IMO has no direct
regulatory authority. It is policed by member states which
are signatories to this agreement.
That said, a Carnival Cruise Line captain was fined
US$114 000 by France for breaching the sulfur fuel limit on
bunker fuel at the Port of Marseilles earlier this year, and
Singapore has mentioned jail for the captains of vessels
that are caught breaking regulations.
However, it is possible that shipping between two
countries with no or lightly regulated environments would
be free to use non-compliant fuel. Due to this, it is probable
that actual compliance with the regulations will vary across
the industry.
Prediction number three: early
implementation will be messy
Along with the decentralised regulation of these
requirements, another open question will be how specific
parts of implementation will work. This is the area with the
most ambiguity and one vulnerable to disruption and issues.
Take, for instance, the very availability of compliant fuel
as these vessels travel around the world. The regulations
require that every attempt be made to secure compliant
fuel, including paying a higher price. But what happens
when there is no compliant fuel to be had at port?
For example, assume a vessel adds fuel in Port A, which
only carries high sulfur marine fuel oil (HSMFO) and it fills its
tanks and heads to Port B, where this vessel provides
authorities with a fuel oil non-availability report (FONAR) to
explain the nature of the fuel it currently holds.
This self-reporting FONAR addresses the question of
compliance, but what about the function of compliance?
Should this ship discharge its fuel at Port B and replace it
with complaint fuel? The letter of the IMO regulations
requires non-compliant fuel tanks to be drained and
cleaned of any non-compliant fuel. If so, who pays for this
commercial impact, and how is this HSMFO disposed of?
These are major functional questions, the answers to
which are yet unclear just five months away from
implementation of these regulations.
How much of the shipping industry will be working
through these problems of compliance in the early days of
implementation?
Fuel scarcity in some ports is not a dramatic prediction
in light of these facts.
Since bringing fuel into compliance will not be
achieved solely by desulfurisation, it will require refiners to
blend fuels (likely distillates with the typical marine fuel
resids). Keeping an eye on the stability of blended fuel oil
will be one way to see how implementation is going. The
lack of clear blended fuel product specifications, which
are used and certified by engine designers, invites
complications and issues. A variant of this was seen in 2018
with bunker fuel quality issues from various ports in the
Americas, which led to shipping delays, engine breakdowns
and insurance claims.
Prediction number four: costs will go
up – shippers (and customers) will pay,
not refiners
This is a key point and one that can be lost when
considering the approaches to bringing the fuel mix into
compliance. Refiners will not be paying the bill for these
upgrades. Scrubbers expected to be in operation in 2020
have already been ordered and installed. Will there be
more? Time will tell.
There is no major rush of refinery projects underway to
address requirements. There are plenty of large-scale
projects in place for hydrotreating and de-asphalting, but it
is difficult to make a direct tie between these projects (with
their multi-year planning cycles) and this current regulation,
whose impacts are still unclear.
It does seem clear that refinery demand rates will be
pushed upward, particularly for coastal refineries.
It is also clear that shipping costs will go up in relation to
this requirement. Shipping vendors have predicted cost
impacts for fuel oil compliance to be between 5 and 10% of
bunker fuel surcharges
Most forecasts indicate refinery utilisation rates will be
positively impacted due to these regulations. Futures
markets have already shown a clear differential on light to
heavy now and into next year. How much further this will
slip is an open question, and one that will also be open to
the same general impacts of hydrocarbon markets.
High sulfur fuel oil (HSFO) will go down in value – where
will these BTUs go? While not part of the scope of this
article, there will be an impact. Some predict substitution
into the power market.
Downward pressure on HSFO prices due to lack of
viable outlets could theoretically spur scrubber installations,
as the value gained by scrubbing will be greater.
Most solutions will require blending, which creates
significant need for additional storage tanks and terminal
infrastructure at ports, especially along the Gulf Coast.
Summary
While the many potential impacts of IMO 2020 are
contemplated, a few likely longer-term impacts are also
worth consideration:
As the demand for clean middle distillates increases, the
spread between diesel and gasoline will likely grow.
Abundant LNG – driven by US shale production – will
make vessel conversion to LNG more viable.
The Jones Act, a US Federal law that requires goods
shipped between US ports to be transported on ships
that are built, owned, and operated by US citizens or
permanent residents, might make less sense in the wake
of these market changes.
Predictions aside, with just five short months to go
before the implementation of IMO 2020, one thing is crystal
clear: much uncertainty remains about the potential impact
of this new regulation on both refiners and marine vessel
operators.