US keeps to sidelines of IMO 2020 debate – for now

USCG's Lantz: more detail needed to evaluate scheme to improve compliant fuel safeguards. Credit: Chris Preovolos
USCG's Lantz: more detail needed to evaluate scheme to improve compliant fuel safeguards. Credit: Chris Preovolos

One of the world’s most aggressive enforcers of international shipping regulations is not yet ready to back a scheme that is seeking more safeguards to block non-compliant fuels from entering bunker markets ahead of the 1 January 2020 sulphur cap deadline.

US Coast Guard (USCG) officials have studied the 31 August proposal submitted to the International Maritime Organization (IMO) by three shipowner groups and four member states with major flag registries seeking a “pragmatic enforcement approach” to the 0.5% sulphur limit for marine fuels, but it is too early to take a position on the issue, they contend.

“We talked to some of the parties who filed this for more details, such as when [the new enforcement approach] would start, what kind of data would you use, and how it would be reported,” Jeff Lantz, the USCG’s director for commercial regulations and standards, told IHS Markit. “But lacking that kind of detail, it’s difficult to say whether or not we would support this.”

Lantz added that it “wasn’t unusual” for industry players looking to ensure that a regulation does not create an uneven playing field among competitors to seek such changes.

The petition, filed by Liberia, Marshall Islands, Panama, and the Bahamas, and shipowner groups BIMCO, Intertanko, and Intercargo, calls for the IMO’s Marine Environment Protection Committee (MEPC) to consider at its next meeting adding into the regulation an experience-building phase similar to one under development within the Ballast Water Management Convention. MEPC 73 is scheduled to meet on 22–26 October.

“The goal is to gain experience in the use of [new compliant fuel blends] and to ensure that unsafe fuels do not enter the market in response to availability pressures,” the petition states. “The co-sponsors consider that challenges in implementation of the 0.5% global fuel oil sulphur limit must be resolved satisfactorily in the months to come in order to preserve the smooth flow of maritime trade.”

The groups did not call for changing the effective date of the regulation, emphasising that they are “fully committed to the successful transition” to the new fuel sulphur limit on 1 January 2020.

“A big part of this debate, on whether there is a ‘phase-in’ approach to this regulation, is between large shipowners and the refinery sector on one side – who are saying ‘no need to worry, the fuel is going to be there’ – and the smaller shipowners on the other, who might not have as much leverage”, an attorney specialising in maritime regulatory enforcement, and who declined to be identified, told IHS Markit. “It’s a competitive thing.”

Weeks before co-sponsoring the petition, Intertanko, which represents tanker owners, had called for government action to prevent the sale of tainted bunker fuel that earlier in the year had spread from the US Gulf Coast to Singapore, while at the same time dismissing suggestions that this concern was an attempt to delay the 2020 deadline.

In addition to maritime and refinery sectors, rollout of the sulphur cap regulation is being closely watched by investors and oil futures traders, because when and how owners and operators alter their bunker purchase strategies will directly affect fuel prices.

“It will be interesting to see how the [IMO] committee reacts to this development, especially given preparatory moves towards compliance in recent months,” investment bank JP Morgan stated in a research note on 24 September.

“In our view, it’s possible that waivers could be granted, but we think it’s unlikely a full delay is implemented. We believe a delay would require support of member states on top of the four listed in the report.”

Many energy forecasters believe that during the 12-24 months immediately following 2020 enforcement, demand for low-sulphur fuel oil (0.5% sulphur content or less) and marine gas oil (a distillate inherently low in sulphur) will spike, with a corresponding decline in demand for high-sulphur (more than 0.5%) non-compliant residual fuel.