LSFO the way to sulphur cap compliance, says Precious Shipping chief

Precious Shipping CEO Khalid Hashim. Credit: Lloyd Fonds
Precious Shipping CEO Khalid Hashim. Credit: Lloyd Fonds

Precious Shipping’s managing director, Khalid Hashim, has forecast that sufficient low-sulphur fuel oil (LSFO) will be available by the time the International Maritime Organization’s (IMO’s) global sulphur cap goes into effect in January 2020. Therefore, liquefied natural gas (LNG) bunkering and scrubbers should not be the top solution for complying with the IMO’s rule, said Khalid.

The more stringent cap limits sulphur content in marine fuel to 0.5% from the present limit of 3.5%. Shipowners can burn LNG, LSFO, alternative fuels such as methanol, or install scrubbers to comply with the new regulations.

Khalid made known his thoughts when Precious, Thailand’s largest dry bulk shipping business, announced a USD3.25 million profit for the third quarter of 2018 (Q3 2018), improving from a USD5.24 million loss in Q3 2017.

Continued recovery in the dry bulk market resulted in Precious’ better results, as the Baltic Dry Index (BDI) averaged 1,607 points in Q3 2018.

As of 30 September, 2,182 ships, or 2.25% of the global fleet, are fitted or are scheduled to be fitted with scrubbers or LNG-powered engines.

Khalid said, “Shipowners will achieve full compliance by burning LSFO. This choice, of course, has a few issues, primarily, adequate availability of LSFO.

“ExxonMobil, ENI, Total, BP, Cepsa, Sinopec, and Indian Oil have all confirmed that LSFO would be available at all the ports that they serve. Hopefully, the ‘flood’ of LSFO that will ensue from 4Q 2019 onwards will ensure that the differential between HSFO [high-sulphur fuel oil] and LSFO is not materially significant. This is one of the main reasons why LNG engines or scrubbers are and should not be the number one choice for owners.”

Other factors that would come into play, he said, would be compatibility issues between different blends of LSFO; excess production of sludge due to mixing LSFO blends; the capability of older ships to keep different LSFO blends separate; and of older engines being able to ‘burn’ such LSFO blends without breaking down or damaging their engines and purifiers.

Khalid added that older ships not capable of using LSFO will be scrapped and all other ships will be slow-steamed to burn the least amount of LSFO in order to make every voyage as economical as possible.

“This will result in a tightening of the supply of ships and in the market reacting strongly in favour of shipowners,” Khalid said.

To this end, Khalid urged shipowners not to refrain from demolishing older bulk carriers to maintain the market recovery.

He noted that in the first nine months of the year, 4.43 million dwt of bulkers have been scrapped compared with 12.8 million dwt scrapped in 2017.

Consequently, net dry bulk fleet growth reached 2.27% from January to September.

“If scrapping doesn’t accelerate, the BDI will continue to remain very volatile, solely dependent on what the demand side does,” said Khalid.