However, whatever the outcome of the IMO’s pronouncements, the EU has already decided on a global cap by 2020. This means that in 2020, a 0.1% sulphur cap will be implemented in the European ECA region, while a 0.5% cap will be introduced in the remaining EU waters.
Another study is being set up to decide whether there will be enough fuel available to satisfy the needs after the global cap comes into force. The study group is due to report back to the IMO by October this year when, if accepted, the study will go ahead and report its findings by 2017.
The industry appears to be divided on the question of low sulphur fuel availability, according to London brokers EA Gibson. A joint UK/Netherlands paper on this subject has said that 2020 refining capacity will exceed the demand for low sulphur fuels, which will reduce the price.
However, another industry expert recently said that the refiners were being constrained by the lack of upgrading in Europe, minimal upgrading in the US and possible delays in the Middle East capacity coming on stream.
This may lead to a significant price differential within different bunkering regions resulting in more product being shipped to areas of low availability and more low sulphur fuel requirement. This could put extra pressure on supply and thus raise prices still further.
According to Gibson, the average price of HSFO in Rotterdam last year was $598 per tonne, but MGO averaged some 30% higher, at $900 per tonne. Some industry players, most notably the Danes, said that the differential could go as high as 50%.in the future.
Another problem highlighted by Moore Stephens recently was the ability to find enough money to remain compliant with the forthcoming environmental regulations, apart from the cost of bunkers.
Moore Stephens shipping partner Michael Simms said, “The Ballast Water Management (BWM) Convention, for example, has not yet entered into force, although some countries, including the US, have already implemented BWM regulations independently of the IMO. “But it is known that BWM systems can cost between $500,000 and $5 mill per vessel, depending on the system, as well as on the size and design of the ship. That cost may increase as a result of demand requirements and shipyard capacity. There are also operational costs to consider of between $10,000 and $50,000 per annum per vessel,” he said.
Apart from the ECAs, where the 0.1% SOx emissions will come in on 1st January, there are more complex calculations for 2016, when IMO NOx limits based on the vessel’s age and engine’s rated speed enter into force.
Unclear
However, Simms acknowledged that the true cost of regulatory compliance is still unclear.
He said, “Think of a number. Any number will do, so long as it is very big. Then double it. The answer is likely to be as accurate a ny supposedly informed estimates currently circulating in the shipping sector about the likely size of the industry’s bill for achieving compliance with incipient environmentally inspired regulations governing the operation of ships. Individual owners and operators may plot their own path through the regulations. One thing is certain, however. hipping is going to have to find a great deal of money over the next few years simply to stay within the rules.”
The mention of shipowners plotting their own path to stay within the rules brings me to the point made by several people during meetings with leading players in Copenhagen recently- the most vocal of which was the Danish Shipowners’ Association.
They thought that many shipowners and operators will simply ignore the low sulphur caps and burn HSFO in ECAs regardless, knowing that they have only a one in 1,000 chance of being detected, due to lack of policing.
Massive savings
It was calculated that a bulker, or tanker, sailing into or out of an ECA to other areas of the world, except to/from the US, could save around $150,000-$175,000 by not buying LSFO. By contrast, the maximum fines for ignoring the rules and burning HSFO might be as little as $20,000.
Then there is the case of short sea shipping, which will have to pass on the extra costs to their customers and maybe drive cargo back onto the roads, as shipping becomes uncompetitive in the Baltic and North Sea ECA areas.
The message to the authorities is clear. There are those who will pay up and those who will not. The whole process needs enforcing, but just how you do that with a vessel transiting an ECA is unclear to say the least.