What the 2020 sulphur content cap regulation means for the shipping industry

The looming 2020 cap on high sulphur fuels has the shipping industry in panic mode, grappling with conflicting advice on how to comply with regulations, and coming to terms with the availability and stability of new 0.5% products. But what does all of this mean for the future of the sector?

Shaun Gray

30 Apr 2019

In less than 12 months, new International Maritime Organization (IMO) regulations will limit the sulphur content of marine fuels on vessels not equipped with exhaust gas cleaning systems to 0.5% , compared to the current 3.5%, in a bid to slash the negative impact of emissions. Excess sulphur has been linked to premature deaths from lung cancer and heart disease, as well as acid rain that damages vegetation and wildlife, and so the move has been widely welcomed.

However, it also means that shipping is having to undergo radical change.

The transition represents the biggest policy shift in shipping for decades, but stakeholders across the value chain, including ship owners and ship managers, ports and crews, remain largely ill-prepared and unsure of the implications and potential impact on their operations.

A key point of contention is the future supply and availability of new low sulphur fuels after the regulation takes effect. According to figures from the IMO, over 95 percent of residual fuel currently consumed by the marine industry has a sulphur content greater than 0.5%. This highlights the scale of the U-turn required by fuel refiners and suppliers to bring cleaner alternative fuels into mass circulation.

In addition, questions remain over the composition and quality of low sulphur fuels, including marine gas oil and ultra-low sulphur fuel oils, and ultimately their impact on vessel safety. An increase in types of diluents, additives, cutter stocks, and blending components could alter fuel chemistry, causing stability and compatibility issues, or unexpected side reactions. With fuels facing an inevitable price hike, some organizations are looking at how to optimize journey times through technology like machine learning.Playing-Catch-Up-[Insert]

Playing catch-up

The IMO has been under pressure for many years to clean up greenhouse gases and bring shipping closer in line with other industries. Estimates suggest that ships are responsible for 15 percent of nitrogen gas and eight percent of sulphur gas worldwide, mainly as a result of burning heavy fuel oil (HFO), the dirtiest fuel by-product extracted in refineries.

The new 0.5% cap, introduced under IMO's MARPOL treaty, was widely supported when it was announced in October 2016, and vessels have a number of options to meet the requirement. Ships can install exhaust gas cleaning systems, also known as scrubbers; they can switch to marine gas oil (MGO) or distillates; they can use ultra-low sulphur fuel oil or compliant 0.5% fuel blends; or they can retrofit vessels to use alternative fuels, such as liquefied natural gas (LNG).

Scrubbers have become an attractive option, mainly due to the widespread availability of HFO compared to other fuel types. Manufacturers such as Wärtsilä have reported a spike in orders for scrubber retrofits, and have adapted new buildings across various vessel types in recent months.

However, the relatively high cost of scrubber installations and questions over their environmental impact in use means such retrofitting is likely to comprise only a small percentage of the 50,000-60,000 vessels affected by the regulation. Analysts have also pointed to a potential shortage of HFO products post-2020 as fuel vendors switch refinery streams to produce low sulphur products.

Most fuel demand in the short term is expected to shift to the lower sulphur distillate MGO, mainly because shipping is familiar with handling it. A five year outlook by the International Energy Agency, published last year, predicts that gasoil consumption will rise by almost 1 million barrels per day, to 1.7 million bpd, in 2020, before falling back to just 773,000 bpd by 2023 as shipping gains confidence in new 0.5% percent fuel formulations.Incompatibility-[Insert]

Incompatibility and instability

Switching to ultra-low sulphur fuel oil, or 0.5% fuel blends, has raised concerns because refineries will need to use different approaches and blending components to meet the 2020 requirement. This then increases the risk of incompatibility and instability problems on ships.

Other than the sulphur content, very little is known about the characteristics of these fuels, such as how paraffinic or asphaltenic they will be. In fact, the only chemical property officially confirmed is the sulphur content.

A spike in the number and variety of products on the market could cause different fuels to react with each other when mixed. For example, when bunkering onboard, there may be higher levels of catalytic fines and varying levels of density and viscosity. The combination of paraffinic and asphaltenic fuels has been observed to create sludge that can block up pipes and purifiers, or cause lasting damage to engines.

Important lessons were learnt during the roll out of 1.0% sulphur fuels in Sulphur Emissions Control Areas, from 2010. The heavily blended products caused blackouts and operational issues on some vessels and, when the cap was subsequently lowered to 0.10%, there were incidents involving loss of propulsion and machinery problems.

The International Organization for Standardization (ISO) has said that all new low sulphur fuels must meet with requirements of the current ISO 8217: 2017 specification, including the technical aspects of machinery operations, safety, environment and onboard handling. It is also investigating new methods of fuel stability testing to improve the assessment of different fuel blend formulations.

Oil majors, such as ExxonMobil and Total, have already invested in the production of new 0.5% fuels. ExxonMobil has said that all its new low sulphur fuels are residual grades that will be available at ports across Europe and in Singapore, Thailand and Hong Kong, before 2020.Gaps-in-supply-[Insert]

Gaps in supply

Refining processes for 0.5% fuels are complex, which introduces logistical challenges in terms of global production and distribution to ports and bunkering stations in different regions.

Unlike HFOs, which are relatively simple for most countries to produce, only a select few regions have technology capable of producing 0.5% sulphur fuels, which could cause bottlenecks when trying to convey fuel to the some 800+ coastal ports worldwide.

Patchy availability could force ships to swap between different fuels leading to unwanted reactions, blockages or breakdowns. As a result, there may be a greater focus on the technical capability crews to handle and store fuels with different chemistries and physical properties.

This also raises legal concerns. If a ship running on 0.5% fuel is suddenly forced to bunker HFO due to a lack of fuel availability in a particular port or region, it may be at risk of being detained, and the Master or ship operator may ultimately face court proceedings. However, it is far more likely that a new version of the current fuel oil non-availability reporting system will be introduced to ensure that ships are not penalized if they can prove they have made best efforts to obtain compliant fuel.

The 0.5% sulphur cap is broadly expected to raise shipping costs. Maersk Line, for example, has estimated an additional USD 2 billion price tag related to fuel and compliance. Some vessel operators will choose to pass those costs on to customers through new or adjusted fuel surcharges, but better use data and technology like machine learning can help improve decision-making, and can optimize journey times to minimize the financial impact.

GreenSteam exploits machine learning to analyze the many variables, such as vessel operational and voyage data, weather and sea state data, and fuel quality data, to pinpoint the most significant fuel losses and provide accurate, actionable advice on how to minimize them.

A similar proactive stance towards planning, supported by expert advice, should ensure that ship owners are able to meet the requirement of the 2020 fuel cap without choking on the economic fall out.New call-to-action


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