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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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KPI Bridge Oil MD questions whether bunker sector will be ready for 0.5% cap

12 Sep 2016 11:12 GMT

Mark Emmet asks how the regulation would be implemented and enforced, and whether enough fuel will be available.

The managing director of KPI Bridge Oil's office in Singapore, Mark Emmet [pictured], has questioned whether the bunker sector will be ready for a global sulphur cap of 0.5 percent in 2020.

Whilst Emmet concedes that the new regulation "is the right thing to do", he believes that it will take time to implement on a global scale.

Two key issues, in Emmet's opinion, are how the regulation would be implemented and how it would be enforced.

"There are major geographic differences worldwide. In a country such as Indonesia, for instance, with 4,000 islands, how would they be able to monitor the regulation?" Emmet told ShippingWatch.

"I've had several conversations with inspection authorities from various nations, and it is safe to say that they admit to be currently lacking the resources for enforcement. So who would police this and check if the regulations are complied with?" Emmet added.

Another question asked by Emmet is whether there will be sufficient low-sulphur fuel available and what would happen to vessels calling at ports where there is no availability of product.

"What happens if a vessel calls at a port where low-sulphur fuel is not available?" Emmet remarked. "Can a certificate be issued stating that a vessel arrives from a port with no access to low-sulphur fuel and what will the next port of call say when presented with this document? Would that be acceptable or will the carrier be fined a specified amount of money and told next time they simply have to comply with the regulations which may involve an expensive deviation to ensure they do?"

"Take the Indian Ocean for example, where the fuel is not readily available, and where the economic imperative could outweigh the environmental considerations," Emmet said, citing a real-world situation.

In preparation for the upcoming regulation, which is set to be implemented either on 1st January 2020 or 1st January 2025, Emmet says KPI Bridge Oil will "need to map out where the fuel is even available. Each of our offices must analyze their regions to discern availability, so that we can share this information with our clients."

"So if we have to choose between 2020 and 2025, then possibly 2025 would be the best alternative," he concluded.

Differing opinions

The 70th session of the IMO Marine Environmental Protection Committee (MEPC 70) is due to take place between 24th and 28th October in London to potentially decide whether to implement a global 0.5 percent limit in January 2020, or to delay until 2025.

An independent study carried out by EnSys Energy & Systems Inc. and Navigistics Consulting and submitted last month to the International Maritime Organization (IMO) said oil refiners will have "extreme difficulty" in meeting demand for low-sulphur marine fuel if a global sulphur cap of 0.5 percent is imposed in 2020.

However, the study's conclusions contrast sharply with those of a separate CE Delft-led study commissioned by the IMO, which said that there could be sufficient refining capacity to meet demand for low-sulphur compliant bunkers by 2020.

Meanwhile, Maritime consultancy 20|20 Marine Energy stated in May that fears of a distillate shortage 'could be misguided'. The company pointed out that diesel use within the automotive and land-based industries may be in decline, which would free up surplus product that could be directed to shipping. It added that refiners will look to create a market for HFO - a refinery by-product which can only realistically be used within shipping.

Demand estimates

The International Energy Agency (IEA) estimates that shipping will account for 9 percent of global distillate demand by 2020, up from 3 percent in 2015. It says a 2020 implementation date for the 0.5 percent sulphur cap would see 2 million barrels per day (b/d) of marine fuel demand switch from heavy fuel oil (HFO) to marine gas oil (MGO), leading to a 2 million-b/d jump in global distillate demand to 30 million b/d. By comparison, the change in the ECA sulphur cap from 1 percent to 0.1 percent in 2015 led to a 0.1 million b/d switch from HFO to MGO, the IEA says.

Meanwhile, the International Petroleum Industry Environmental Conservation Association (IPIECA), using combined data from BP, Marine and Energy Consulting, IEA and OPEC, has said that a switch from HFO to distillates and/or desulphurised HFOs in 2020 would see demand for these products jump 3 million b/d or more, compared to a rise of 0.5 million b/d when the ECA regulations were implemented in 2015.

Related Links:

IBIA 'Be prepared' SMM forum to examine 0.5% sulphur cap
Shenzhen outlines 0.5% sulphur cap requirements
'Extreme difficulty' for refiners to meet 2020 sulphur cap demand, says study
Distillate supplies could match demand for global ECA, says consultancy
IBIA surveys members on global sulphur cap
ICS calls for 'immediate' decision on IMO sulphur cap

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