As the new year approaches, the International Maritime Organization (IMO) is set to enforce IMO 2020, which goes into effect on January 1, 2020 and is intended to reduce sulphur oxides (SOx) emissions. Under the new regulation, which was first announced in 2016, ships will be required to use fuels containing no more than 0.50% sulphur. This represents a significant decrease from the current 3.5% sulphur limit.
How will the new IMO regulation impact industry?
The new regulation impacts industry on a global scale. Currently, much of the shipping industry uses high sulfur fuel oil (HSFO), or bunker oil, which is a lower grade product of refinery processes. However, with IMO 2020 focused on reducing sulphur emissions, HSFO will no longer be a compliant product on its own.
IMO 2020 compliance considerations
- Shipping operators will be able to comply with IMO 2020 through various routes. For example, compliance can be achieved by selecting compliant fuel or by using sulphur mitigation technologies, such as “scrubbers.” Scrubbers can be installed to remove SOx from a ship’s engine and boiler exhaust gases. To assist shipping operators in their compliance efforts, IMO has recommended that impacted vessels develop a ship implementation plan (SIP) as a guide for January 1, 2020. Shippers may also decide to switch to other types of fuels, but they may face problems consistently and reliably finding those fuels at ports, as available fuel types differ from location to location.
- Refineries will also be actively engaged with the new regulation as they work to provide compliant fuel oils in sufficient quantities. Like shipping operators, fuel suppliers have multiple options they can consider. For example, refineries can convert HSFO to very low sulphur fuel oil (VLSFO) or middle distillate products and light/sweet oils. No matter the chosen production method, refiners may face challenges accurately anticipating market movements and having adequate investments and technologies in place to meet demand. Additionally, refineries will likely take into consideration how to store and dispose of HSFO. Refineries will also likely receive more heavy crudes for upgrading to lighter/sweet oils and may experience increased demand for middle distillate products.
- Oil recyclers may see changes in their current client requests and sales. A reduction in sales of HSFO will likely drive down HSFO prices. As IMO 2020 takes effect, oil recyclers may see significant fluctuations in HSFO pricing, and ultimately have trouble determining how much supply they will need to meet the actual demand. In addition, marine gas oil (MGO) and other middle distillate products may be in short quantity in the near future while refiners race to meet demands.
For stakeholders, compliance not only comes with a host of logistical concerns, but it also introduces key safety considerations. For example, shipping operators may need to re-evaluate ship tank design and fuel quality, and fuel suppliers will need to confirm the stability of blended fuel oils.
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