Costly compliance: Higher fuel prices as IMO 2020 kicks in this week

THOUSANDS of ships worldwide will face using marine fuel containing no more than 0

30 December 2019 - 19:00

THOUSANDS of ships worldwide will face using marine fuel containing no more than 0.5 per cent sulphur to meet the UN's International Maritime Organisation's new regulation from January. Those who don't could face penalties and even imprisonment.

Ports are deploying drones to sniff out wrongdoers. The regulations are having a profound effect on oil refineries and the cost of seaborne trade looks set to rise, reports Bloomberg.

When the regulations were mandated back in October 2016, they came as a shock to many observers who had expected a later start date. While a panic about getting ready has subsided, there's clearly still work to do.

'IMO 2020 is the most fundamental and dramatic product specification change the oil industry has experienced, with an impact on both shipping and refining,' said chief executive officer Torbjorn Tornqvist of Gunvor Group, one of the world's largest oil and gas traders. 'It has the potential to change every product and crude differential out there.'

The cost of shipping a laden TEU from Latin America to Europe could rise by US$26, according to IHS Markit, equivalent to $0.05 on a crate of bananas.

It's still too early to say exactly who the biggest winners and losers will be among refineries because there are thousands of variables that shape their profit - 600 grades of crude, and many ways of setting up the plants.

The shipping industry has been consistent in flagging a safety concern about the rules. As yet, there's no single global standard. The new fuel must simply have certain properties - including sulphur and other important metrics - that don't exceed specified levels.

Yet, the lack of a single global product means refineries can make a compliant fuel in different ways. It's thought that some will essentially be low sulphur crudes that are carefully mixed with other oils. Another way of making the product is to mix the residues from crude that have gone through what's known as vacuum processing in a refinery with other material.

Proof of the greater risks have emerged in northwest Europe, where supplies of the new fuel have been found to contain too much sediment. If such fuel found its way onto ships, it could potentially clog filters and lead to engine problems.

'We still have concerns over safety and availability of compliant fuels,' said International Chamber of Shipping secretary general Guy Platten. 'This is a pressing issue.'

There are already signs that the changeover is having an impact on maritime logistics.

In Singapore, the world's biggest refuelling centre, vessels have had to wait longer than normal to collect bunker fuel. Likewise, the government of Gibraltar said that a lack of refuelling barges has emerged.

'When you consider that 90 per cent of global trade is carried out by seas, it is very important,' said Frontline Ltd chief executive officer Robert Hvide Macleod. His company is one of the world's biggest supertanker owners.


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