Sulphur cap effects extend beyond fuel costs

Stena Bulk's Hånell tells Fairplay that – like many owners – he is still weighing fuel compliance options. Credit: Stena Bulk
Stena Bulk's Hånell tells Fairplay that – like many owners – he is still weighing fuel compliance options. Credit: Stena Bulk

While increased bunkering costs expected to accompany the International Maritime Organization’s (IMO’s) global sulphur cap takes up much of the industry’s forecasting, shipowners should be wary of the potential operational implications in store as well.

The regulation, which will require bunker fuel to drop from 3.5% sulphur to 0.5% or less by 1 January 2020, will increase demand for clean-burning marine gas oil and ultra-low sulphur fuel oil, causing a price spike, at least initially, for those compliant fuels.

But the regulation will also not only affect how the fuel is stored on board but where the ship trades, according to a marine fuels expert.

The availability and price of 2020-compliant fuel will mean that certain ships “will be determined by their operators to be profitable only in a certain trading area”, Alok Sharma, head of global sales at Inatech, a division of bunker fuel supplier Glencore, told IHS Markit

“Vessel operators aren’t used to that. Right now they say they have a global network, but I don’t think it’s going to be a global network for some if they want to maintain profitability. There will be a need to keep certain ships in a certain region because that’s where the fuel type that a particular ship requires will be located.”

Fuel availability was the focus of a warning from the International Chamber of Shipping (ICS) on 21 May, issued directly after the group’s annual meeting of member national shipowner associations in Hong Kong.

“It is still far from certain that sufficient quantities of compliant fuels will be available in every port worldwide by 1 January 2020,” said ICS chairman Esben Poulsson. “And in the absence of global standards for many of the new blended fuels that oil refiners have promised, there are some potentially serious safety issues due to the use of incompatible bunkers.”

It is unknown at the moment, Poulsson said, what types of fuel will be available and at what price, specification, and quantity. “Unless everyone gets to grips with this quickly we could be faced with an unholy mess with ships and cargo being stuck in port.”

Based on discussions with shipowners, Sharma is convinced that weighing low-sulphur fuel strategies – as opposed to opting to install emissions scrubbers that will allow vessels to continue to burn high-sulphur fuel – will form the bulk of shipowners’ compliance assessments.

“I agree with the ICS that there is a lack of guidance on the regulation and things are unclear,” Sharma said. “On the other hand, a shipowner could call any fuel supplier as we speak and lock in terms on a long-term supply contract, and hedge against a lot of that uncertainty.”

But tanker specialist Stena Bulk, which operates a fleet of approximately 100 vessels, is not discounting scrubbers as a compliance option.

“The challenge today is not knowing what fuels will be available where, so the compliance considerations of what to go for is still quite difficult from a shipowner point of view,” Stena Bulk president and CEO Erik Hånell told IHS Markit. “You could choose to play it safe and install a scrubber, which provides another option in addition to burning low-sulphur fuel, and you’ve hedged your bets even more – but of course that comes at a significant investment.”

Hånell said that the scrubber option for newbuildings “is a pretty easy decision” owing to the minimal cost compared with retrofitting an existing vessel.

“For existing ships it’s definitely a calculation that needs to be made,” he said. “From our point of view, we haven’t quite made that yet, but we’ll be getting there shortly.”