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Industry braces for higher fuel costs under new IMO sulfur cap

Jul 31, 2018 04:45 PM

With the 2020 deadline looming for the International Maritime Organization’s 0.5 percent sulfur fuel cap, vessel operators are facing uncertain financial and practical implications.

Fuel costs for the industry could rise $50 billion to $60 billion a year under the new limit, including $10 billion for the container fleet alone, according to A.P. Moller-Maersk CEO Soren Skou. Speaking at an industry event in April in Singapore, Skou said vessels that continue to use high-sulfur fuel oil without scrubbers should be banned starting in 2020.

The consulting firm Wood Mackenzie estimates that global fuel costs for shipping are likely to rise by 25 percent, or $24 billion, when the new rule takes effect. According to Platts, the price difference between high-sulfur fuel oil and low-sulfur fuel is currently about $200 per metric ton.

To achieve compliance with the pending regulation, vessel operators can switch to low-sulfur fuel, install scrubbers or adopt alternative fuels such as liquefied natural gas (LNG).

Some operators have installed scrubbers in newbuilds and retrofitted older vessels in anticipation of the requirement. However, installing scrubbers too soon could lock vessel owners into technology that may not meet future standards.

“Owners should be concerned if discharge standards would change and they may need to upgrade the scrubber,” said Kathy Metcalf, president and CEO of the Chamber of Shipping of America. “However, a scrubber that allows the operator to use less expensive fuel will pay for itself in about three years.”

The industry estimates that enough low-sulfur fuel will be available in major shipping hubs after the new cap goes into effect, but more remote areas in South America, Southeast Asia and Africa may not have adequate supplies at first. There may be quality problems initially as well, Metcalf said, as the 0.5 percent fuel will be made up of existing streams from refineries.

“There are issues of burning fuels that have never been sent through an engine before,” she said. “We have no idea what will happen until we see the blends.”

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