30-10-2018

IMO meeting eliminates doubts over 2020 delay

If any doubts remained that the International Maritime Organization’s tighter sulfur emission limits for ships in 2020 could be delayed or otherwise watered down, those doubts should have been laid to rest at a key committee meeting of the UN body last week.

The IMO’s global marine fuels sulfur limit is set to drop from 3.5% to 0.5% at the start of 2020, forcing ship operators to use cleaner, more expensive alternatives to heavy fuel oil and bringing wide-ranging other consequences for commodity markets.

S&P Global Platts Analytics forecasts a shift of approximately 3 million b/d of marine demand from high sulfur fuel oil to lower sulfur alternatives, and a significant jump in crude prices as refiners increase runs to maximize middle distillate output to meet the new demand.

The January 1, 2020 implementation date for the new sulfur limit was decided two years ago, but doubts have repeatedly surfaced since then about whether it would be met, or could be postponed or phased in in a more relaxed manner.

Those doubts were given another outing at a meeting of the IMO’s Marine Environment Protection Committee (MEPC) last week.

US SUPPORTS ‘EXPERIENCE-BUILDING PHASE’

A Wall Street Journal story on October 19 raised the prospect of the US putting obstacles in the way of the sulfur cap, quoting a White House source as saying the Trump administration would seek to “mitigate the impact of precipitous fuel cost increases on consumers.”

The oil market reacted as if the Trump administration was opposing the lower sulfur cap outright: the 2020 hi-low fuel oil swap narrowed significantly on the morning of October 19, showing reduced expectations of a large-scale shift in marine demand that year.

At the MEPC meeting last week, the US delegation made it clear it was just supporting a proposal for an “experience-building phase” in the initial period after 2020 when concerns over fuel availability and quality may cause problems for shipowners.

The authors of that proposal — first submitted by the Bahamas, the Marshall Islands, Liberia, Panama and various shipping associations — “envisage the experience-building phase as a time to permit all stakeholders (such as ship operators, engine manufacturers, refineries, bunker suppliers, recognized organizations, member states and observer organizations) to provide input on an inclusive IMO process that will enable the current challenging regulatory requirements to be safely addressed without unduly penalizing individual ships,” according to a draft of the document.

The proposal was rejected late last Wednesday. While proponents of this measure defended it as a data-gathering exercise that would assist with robust implementation of the tighter sulfur cap in 2020, some of its detractors saw it as an attempt to water down the regulation.

The IMO has repeatedly stressed there is no opportunity between now and 2020 to delay the implementation.

CARRIAGE BAN ADOPTED

Last week’s MEPC meeting also adopted another measure designed to help with enforcement of the new sulfur limit – a ban on the carriage of non-compliant fuels, now coming into effect at the start of March 2020.

The IMO has no powers itself to enforce its regulations, and in the high seas it is the responsibility of the flag state where a vessel is registered to check whether it is burning the right type of fuel.

This was previously an area of concern for some forecasting widespread non-compliance in 2020, as not every flag state would be expected to be vigilant in enforcing the sulfur limit.

The carriage ban helps allay this concern by empowering port states to check whether the vessels leaving their waters have sufficient 0.5% sulfur fuel for their entire journey. Port states governing most of the major oil hubs across the world would be likely to have robust enforcement measures in place, making non-compliance a much more difficult prospect for any vessel calling at those hubs.

A proposal to delay the implementation of the carriage ban was discussed at the MEPC meeting and received some support, but was ultimately rejected.

Source: Platts

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