Providing the global shipping industry with compliant fuels in 2020 is a challenge that should not be underestimated, according to Iain White, Global Marketing Manager ExxonMobil Marine Fuels and Lubricants.
He was responding to a question during a Lloyd’s List panel about whether the industry is “sleepwalking” toward the 0.50% global sulphur regulation in 2020. White said the refining and marine fuel industry is preparing, but reminded the audience that the change in the global fuel sulphur limit required under the International Maritime Organization regulation from 3.50% to 0.50% is an “unprecedented shift”. Preparation is complicated by the fact that refiners cannot coordinate efforts because they compete, and are bound by anti-competition laws.
White said refiners are “looking carefully at their options” regarding how to handle the change in demand, and that ExxonMobil is working on solutions for 2020 “but we are not quite there yet”. The picture is complicated by the fact that no two refineries are the same and hence their optimum response to the change in demand will vary. What type of fuels they might provide for the marine fuels market will also vary.
White also pointed out the investment required for a refinery upgrade that enables it to produce more low sulphur distillates is huge, adding that some state-run refiners may not have the same opportunities to invest in changing its production capabilities as privately owned refineries.
It is likely that a lot of blending of fuels to meet the 0.50% sulphur limit will happen outside refineries, in the same way a large share of marine fuels supplied globally are blended outside refineries today. White said that if you look at the typical sulphur average of fuel oil sold to ships globally today, you would need to add 85% distillates to blend it down to 0.50% sulphur. Then the question arises as to the fuel characteristics of these blends, in particular with regards to stability, catalyst fines and compatibility with other fuel grades, White said.
There won’t be a delay to the 2020 implementation date from IMO, but suppliers have a bigger problem than ships because if ships cannot get compliant fuel, they will be able to use a non-availability clause, whereas suppliers have to try to find the answer to the question: when will ships buy compliant fuel, Tim Wilson, Principal specialist, fuels, lubes and exhaust emissions at Lloyd’s Register told the panel. He predicted that the situation at the start of 2020 would be chaotic. To minimise the chaos we need to see the transition from fuels with a 3.50% to a 0.50% sulphur limit in August 2019, Wilson suggested.
The increase in demand for distillates means shipping will be competing with other sectors for diesel, another panellist, Philip Roche of the legal firm Norton Rose Fulbright observed. The middle distillate market is already sensitive to price pressures from seasonal demand phenomenon such as winter heating oil and harvest seasons when large quantities are needed for agriculture.
It is hard to predict exactly what these pressures will mean for the price of marine fuels and diesel cost to other sectors, or indeed the cost of marine transport, but Roche said “we do not think the world economy is aware” of the increase in the cost coming its way. He said the shipping industry isn’t getting this message across.
Although the anticipated rise on fuel cost in 2020 makes installing abatement technology look attractive, few seem to think it will be widely adopted prior to 2020.
“Owners are not investing because they won’t get payback until 2020,” said White, which is why he doubted the number of ships with scrubbers would go up from around 400 today to around 3,500 by 2020 as predicted in studies last year.