10-04-2017

For the bunker industry, 100% sulfur compliance by 2020 is a distant dream

bunker

The world’s bunker industry is making progress in inching toward meeting the International Maritime Organization (IMO) global sulfur cap target by 2020, but with less than three years to go, achieving the target in its entirety still looks like a tough climb.

Apart from the fundamentals — availability of 0.5% sulfur compliant fuels or other suitable alternatives — uncertainty about oil prices and the huge costs involved will also be hurdles to achieving a radical change, sources said, adding that neither the refining industry nor the shipping sector are equipped to deal with the tectonic shifts.

This view also resonated at an industry conference in Fujairah last week, where over 30% of the respondents who participated in a live poll said there would be some degree of non-compliance with the related emission control area (ECA) cap by 2020. Although, they were specifically responding to compliance in ECA, this might be indicative of how things might look like in non ECAs, if one were to extend the sampling group.

“Of course, we have to take care of the environment, of course we have to take care of the next generation [but] of course, we have to be reasonable [to the industry],” Gamal Fekry, the CEO of Red Sea Marine Management DMCC, said at Fujcon 2017 last week.

“Everybody is waiting because there is no incentive in place to do anything right now [ahead of the 2020 global sulfur cap]. Banks are not going to give money for scrubbers unless they know the repayment or payback time and find the economics attractive, while LNG is for the future as infrastructure is insufficient and capital intensive. The majority [of customers] will be hoping that refineries and trading companies can provide blended fuels although the supply chain will not be able to adapt that quickly,” according to Paul Nix, general manager of terminal operations at Gulf Petrochem.

When ECA zones were first introduced in Europe, some shipowners simply opted to pay the fines and not comply with the sulfur limit there, as this was still cheaper than burning ECA compliant fuels, Nix said, adding that the industry has been relying too heavily on a penalty-based system.

A carrot-based approach, which has incentives, may be better than using a stick, with penalties, he said.

However, some felt that, as long as penalties around the world are similar and are high enough, the industry will be compelled to abide. “By 2020, we will have some sort of compliance; we’ll know how regulation will be enforced and how effective it is. If the industry has clarity, then solutions will be found and it will work its way through it…but unless there is a level playing field, everybody will wait and watch before adopting a solution,” said Andrew Laven, manging director at Bomin Oil DMCC.

There are 88 signatories to Annex VI of the international MARPOL environmental convention, which aims to prevent air pollution from ships. In addition, according to the International Transport Workers’ Federation, there are 35 Open Registries, of which 13 are signatories to Annex VI and 22 are not. As a result, over 90% of global trade now passes through ports in the 88 signatory states.

Open Registries/Flags of Convenience account for about 70% of bunker purchases, Robin Meech, managing director at Marine & Energy Consulting and Chairman of the International Bunker Industry Association (IBIA), said in an e-mail to S&P Global Platts Thursday, adding that this leaves significant scope for re-flagging, reducing compliance if adequate measures are not taken.

Furthermore, of the 88 signatories, so far only 28 states (26 in the EU, along with the US and Canada) have significantly enforced Annex VI, Meech said.

“This means 60 states require port state enforcement resources and training for officers,” he said.

Measures to improve compliance could include making it illegal to leave port with insufficient bunkers to reach the next designated port compliantly, he said. There is also a need to improve bunkering standards in many ports by introducing unified standards, accurate measurement and survey systems, and more training for seafarers and port officers, he said.

“For its part, IBIA is also seeking to smooth the transition post 2020,” he said, adding that the association has developed the IBIA Port Charter, which focuses on three essential principles to ensure that systems are in place to enable quality bunkers to be delivered, measures are taken to ensure that the correct quantity is delivered, and systems are transparent for all concerned parties.

Source: Platts  

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