The Baltic and International Maritime Council (BIMCO) - an international shipping association representing ship owners - has this week voiced its "serious concerns about some of the conclusions of the official study" that will be used to inform the decision of the International Maritime Organization (IMO) at the upcoming Marine Environment Protection Committee (MEPC) meeting over the implementation date of a 0.5% global limit on the sulphur content of marine fuel.
BIMCO states that the
CE Delft-led study commissioned by the IMO, which says that there could be sufficient refining capacity to meet demand for low-sulphur compliant bunkers by 2020, has "failed to fully address the IMO's terms of reference" in a number of key areas. They are listed as being:
- Fuel oil quality. According to BIMCO, a significant amount of the fuel oil that the IMO study concludes will be available for marine use in January 2020 - one of two dates that a proposed 0.5 global sulphur cap could be implemented, with the other being January 2025 - is unsafe to store and use on board ships.
- How an assessed shortage of sulphur removal capacity in refineries will be resolved so that capacity would be in place by 2020.
- The study, BIMCO says, fails to model the disruption that an overnight introduction of the global cap (from 31 December 2019) would cause.
As a result, BIMCO states it is not possible to determine that the global refining industry will have the capacity to produce enough marine fuel by 2020. BIMCO also raises concerns that the supply of fuel to other sectors of the global economy could face major disruption if the scenario is not addressed beforehand.
BIMCO and sponsors including oil and gas industry association IPIECA helped fund an independent study carried out by
EnSys Energy & Systems Inc. and
Navigistics Consulting that was submitted to the International Maritime Organization (IMO), which says 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. The conclusions of the report contrast sharply with those of the IMO-commissioned study.
The BIMCO-sponsored report's findings "point to extreme difficulty - and indeed potential infeasibility - for the refining sector to supply the needed fuel under the global sulphur cap and to simultaneously meet all other demand without surpluses or deficits".
The study adds: "Market impacts are projected as very substantial across all products and regions worldwide, not just marine fuels, and, consequently, to have potentially significant impacts across economies and sectors.
"The global refining industry is unlikely to be able to meet the needed extra sulphur removal demand because 2020 sulphur plant (and hydrogen plant) capacity will not be adequate based on current capacity plus projects."
In CE Delft's earlier IMO-commissioned study, it stated: "The refinery industry can produce sufficient amounts of marine fuels of the required quality in the base case, the high case, and the low case while at the same time supplying other sectors with the petroleum products they require."
In the report, CE Delft also assumes that refineries around the world will have enough capacity to supply compliant fuel.
Lars Robert Pedersen, Deputy Secretary General at BIMCO, said this week: "It is clear that the IMO study is flawed, meaning it is not possible to determine from the study that there would be sufficient fuel available in 2020. On that basis, our opinion is that it would be irresponsible for IMO to make the decision to go for 2020 at MEPC 70 in October. There is clearly a need for additional analysis to ensure the supply chain for global trade is not seriously disrupted and developing nations are not hit hard by a lack of affordable energy.
"This is not about the cost of low sulphur fuel for ships - that has long been known. We know that the shipping industry will buy the fuel they need. But if it is in short supply, the cost will rise not just for shipping but for all users of the fuel. This will price those in poorer economies out of the market.
"It's a complex issue - but the difficulties in ensuring sufficient refinery capacity and the disruption caused by an overnight introduction have to be thoroughly taken into account."
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.
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.
Last week,
Marine Energy Consulting Ltd. (MECL) and 20|20 Marine Energy, announced that they will collaborate to produce a comprehensive evaluation of the impact of MARPOL Annex VI global sulphur regulations on the shipping industry. The study, set to be available in early 2017, is to include a detailed impact assessment of the regulations, as well as insights into compliance solutions.
The two firms said the study "will be of value to all stakeholders involved and invested in the marine fuel supply chain. It will benefit refiners that need to understand how the legislation will impact demand, fuel suppliers, port authorities and operators that require insight as to where to invest in infrastructure based on the demand for a range of products; as well as ship owners that need a broad knowledge of viable compliance solutions and the impact the change in legislation will have on their operations and profitability".
"The majority of people currently expect that the global sulphur cap will be implemented in 2020, which leaves just over three years to prepare in an increasingly complex market, fraught with questions and risk," commented Adrian Tolson, Senior Partner, 20|20 Marine Energy.
"This is coupled with a huge uncertainty in the shipping industry on how the regulation will impact supply, demand and availability, product compatibility and specifications, future pricing, global infrastructure, as well as the choice of compliance solutions available, and how they can be financed."
The MECL - 20|20 study will cover:
- Fuel supply, demand and availability on a region-by-region basis by types of bunkers including LNG and other alternative fuels through to 2035
- The new make-up of the fuel supply chain, including fuel prices, differentials, compatibility and quality standards
- The viability of abatement technology uptake and its financing
- New desulphuring technologies and associated products
- Port infrastructure, storage and investment
- Potential enforcement regimes and associated sanctions
The next MEPC meeting is due to be held later this month at IMO's headquarters in London between 24th and 28th October.
