Tackling IMO 2020: The Final Countdown Begins

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Under IMO’s mandate, global sulphur emission limits for marine fuels would be cut to 0.5% in 2020, from the current 3.5%. Ship operators accordingly will have to switch to cleaner, more expensive fuel or to alternative fuels such as LNG, or invest in exhaust gas cleaning systems also known as scrubbers, to comply with the new limits.

The question is how much the industry is prepared for IMO 2020 global sulphur cap? The entire industry is banking on refineries to deliver compliant fuel. Options to comply with the rule include marine gasoil, blended fuels, high sulphur fuel oil with scrubbers and alternatives such as LNG. However, confusion reigns as the industry grapples with the magnitude of the change and the possibility of additional costs.

The clock is ticking towards the 0.5% sulphur cap and although this is about to become effective globally in less than 18 months from today, the route to compliance remains challenging.

Challenges Ahead

1 Fuel availability in 2020 (refining capacity)

2 Fuel safety onboard ships;

3  Fuel price (achieve cost-effective compliance);

4  Global enforcement outside ECAs ;

5  PSC and violation penalties / Global enforcement regime;

6 Fuel quality and compliance with ISO 8217 standard;

7 Uncertainty on the cost of existing fuels in 2020 and market impact towards the next 10      years;

8  Upfront investment vs long term savings for operators given the lack of certainty;

9  Operational complexity of the fuels and technologies to comply with requirements;

10 Possible changes in the regulatory landscape.

IMO’s Ship Plan for Global Sulphur Cap

An IMO working group meeting has developed a ship implementation plan (SIP) supported by information documents as part of the work to provide guidance on preparatory and transitional issues leading up the 0.50% sulphur limit for marine fuels from 1 January 2020.

It was agreed ahead of the intersessional working group (ISWG) meeting of the Sub-Committee on Pollution Prevention and Response (PPR) last week, tasked with developing guidelines to support the consistent implementation of the 2020 sulphur limit, that these aspects needed to fast-tracked so they can be approved by the IMO’s Marine Environment Protection Committee (MEPC) in October this year.

The SIP, which is not mandatory, can be filled in by ship owners/operators to help them plan and demonstrate the steps taken by ships to prepare for compliance with the 0.50% sulphur limit on 1 January 2020. This includes aspects such as modifications to fuel oil systems and tank cleaning if needed, fuel oil capacity and segregation capability, and bunkering plans in the lead-up to the compliance date.

In addition to the SIP itself, there is an appendix addressing the impact on machinery systems, containing advice on how to prepare for use of distillates, fuel oil blends, or both, as the compliance option for the 0.50% sulphur limit. The document focuses on any adjustments and changes that may be required or advisable on the ship ahead of the implementation date, rather than on-going operational aspects, which are expected to be detailed in guidance documents that are still under development.

A second appendix to the SIP relates to tank cleaning, which is based on a document submitted by IBIA to the ISWG describing options available for cleaning fuel oil tanks and systems.

IBIA’s document highlighted both operational risks to ships and the risk of non-compliance with the 0.50% sulphur limit if ships choose to simply load compliant fuels into tanks and that have held high viscosity high sulphur fuel oil (HSFO) because the compliant fuels could act as solvents causing HSFO sediments and asphaltenic sludge to rapidly dissolve.

Latest updates on industry’s preparations

IMO’s Sub-Committee on Pollution Prevention and Response, held from 9 to 13 July, addressed various issues regarding the implementation of the Sulphur cap. Namely, IMO’s Working Group (ISWG) agreed that the sulphur content of fuel oil test method ISO 8754, should be included in Regulation 2 of MARPOL Annex VI.

During PRR Sub-Committee, Marshall Islands raised safety concerns by submitting a paper to the ISWG on the implementation of the 2020 global sulphur cap under MARPOL Annex VI. This submission aims to help the ISWG create guidelines to implement the regulation 14.1.3 of MARPOL Annex VI. RMI’s submission provides technical information about safety implications and challenges regarding new fuel oil blends compliant with the new 0.50% sulphur fuel oil standard. It also touches upon operational and technical measures to address risks during fuel switching, tank cleaning and fuel system arrangements. The submission was co-sponsored by the Republic of Liberia, BIMCO, ICSINTERCARGO, INTERTANKO and WSC.

In addition, the Sub-Committee discussed regulatory changes regarding sulphur verification for samples taken from ships’ fuel systems. These are not covered by appendix VI to MARPOL Annex VI which deals with the sulphur verification procedure for the sample provided to the ship at the time of delivery. The majority was in favor of dealing with this aspect by amending appendix VI on the sulphur verification method so that it can be applied to both MARPOL and in-use samples, and to simplify appendix VI so that verification of compliance can be achieved by testing at just one laboratory.

Moreover, according to IBIA, confusion about whether the ISO 8217 marine fuel quality standard covers fuel blends produced to meet the 0.50% sulphur limit has been cleared up. The concerns were related to safety issues, however a statement made by ISO said the 0.50% fuel oils “will be fully capable of being categorised within the existing ISO 8217 standard.”

BIMCO 2020 Clause by November 2018

Technical, regulatory and financial aspects of the 2020 global fuel sulphur cap regime understandably loom large in people’s minds. But the importance of the contractual dimension should not be overlooked. BIMCO is forging ahead with an all-encompassing 2020 Clause for charter parties, which should be published in November.

Older standard forms need additional wording

Most standard forms of charter party contain rather meagre and outdated bunker clauses that often do not address contemporary bunker-related issues. A few years ago, BIMCO produced a suite of bunker clauses for charter parties to supplement the existing bunker provisions in standard forms – including some of its own older charter parties. These clauses deal with most of the key issues relating to bunkers but may also need to be carefully read in the context of 2020. There are many issues that need to be looked at, but this article focuses on quantities, prices and grades on redelivery under a time charter.

Getting the price right

It is important to look carefully at what your bunker clause says about quantities and price. Prices for compliant low sulphur fuel may be much higher than current prices after the 1 January 2020 implementation date. Supplies may initially be limited and so, in the case of BALTIME, a “current price” at the redelivery port may not be available. Similarly, any residual high sulphur fuel may have little or no value (and may need to be removed at cost if scrubbers are not fitted). A bunker price adjustment clause may be a helpful addition.

Ships redelivering shortly after 1 January 2020 may have some residual quantities of bunkers with high sulphur content onboard. Unless the ship is fitted with a scrubber, the high sulphur fuel will be unusable by the owners and will have to be off-loaded before the date of prohibition of carriage comes into effect. Who should pay for the fuel to be offloaded? Stocks of high sulphur fuel should be managed so that quantities are at a minimum on redelivery. Unless the bunker clause specifies quantities and grades on redelivery, care should be taken to ensure that there are sufficient quantities of compliant low sulphur fuel on board to get the ship to the nearest port where bunkers of the appropriate grade are available. Be aware that, initially at least, supplies of compliant low sulphur fuel may not necessarily be available at the nearest main bunkering port (as per SHELLTIME).

Finally, we cannot emphasise enough the importance of stating very clearly in the charter party that the bunker fuel provided by time charterers should be compliant with MARPOL Annex VI. The maximum sulphur content of any bunker stem during the charter period should be stated as a percentage to avoid any potential dispute about what constitutes “low sulphur fuel”.

LNG vs Scubbers

In the meantime, a new study for Transport & Environment by the UMAS consultancy found that LNG does not guarantee compliance with 2020 sulphur cap. Specifically, the study said that creating LNG infrastructure for shipping in Europe would cost USD 22 billion and deliver a 6% reduction in ship GHG emissions by 2050. The downside is that these emissions savings would likely be cancelled out by the growth of maritime trade. The study also highlighted that if current investments in LNG infrastructure require a large LNG market, but the sector ultimately chooses zero-emission technologies, then many LNG assets will likely become stranded by 2050.

On the other hand, scrubber uptake is rapidly accelerating with the number of ships with EGCS installed or on order standing at 983 as of 31 May 2018, according to a survey by EGCSA. Namely, 63% of all ships have either been or will be retrofitted with scrubbers, while 37% are new building installations. What is more, 988 of the 1561 individual scrubber towers installed or on order are for open loop scrubbing; confirming it as the most popular EGCS. In addition, nearly 60% of all retrofits and newbuilding installation works take place in Asian yards, with this number increasing to nearly 85% of newbuilding installations.

Sulphur-Cap preparations: Where we stand

The clock is ticking towards the 0.5% sulphur cap and although this is about to become effective globally in less than 18 months from today, the route to compliance remains challenging. Earlier in 2018, SAFETY4SEA launched a survey reflecting trends with respect to industry’s readiness to comply with the 0.5% sulphur cap. Key points and data analysis were presented at the 2018 GREEN4SEA Conference in March.

Is the industry ready?

Faced with a decision with huge cost implications, shipowners are considering all options on how to tackle sulphur emissions. According to findings from an ExxonMobil survey, conducted in 2017, the majority of stakeholders do not believe the marine industry is ready for the 2020 sulphur cap implementation. The results revealed an ongoing sense of confusion and lack of preparedness, with 70% of respondents saying that they do not believe the industry will meet the requirements until the deadline.

Moreover, a survey conducted by consulting company KBC found that the majority of refiners don’t have a back-up plan to cope with the Sulphur requirements effective from 2020, as only 15 per cent of oil refiners know how they are going to handle it. Nonetheless, any possible delay to Sulphur Cap implementation – resembling to BWMC when at MEPC71 a deferral was argued – has been ruled out by industry’s associations.

(References: Safety4Sea, BIMCO, IMO)

Sea News Feature, October 2

Baibhav Mishra
Author: Baibhav Mishra

Associate Editor, Sea News

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