Environment On the Agenda – Market Commentary

[London, April 2018] – Since last month, there has been more discussion on the impact shipping fuel oil has on the environment and the necessary regulations that need to be implemented for the maritime industry to do its bit. The Marine Environment Protection Committee (MEPC) met for the 72nd session two weeks ago to discuss the climate change strategy for shipping. The discussion included adopting an initial strategy to reduce Greenhouse Gases; amendments to the mandatory data collection system; guidance on best practice for fuel quality; adoption of amendments to the BWM Convention, amongst other hot topics. However, one of the topics that has a lot of people wondering about the impact is the implementation of the Sulphur 2020 limit, with many are regarding as the “biggest technical disruption to the industry for a generation”.​ From early 2020, there will be a 0.50% limit on sulphur content of any in fuel oil used or carried on board ships (outside the designated emission control area [ECA] where the limit here is 0.10%). The MEPC approved, with a view to adoption at MEPC 73 (this October), the draft amendments to MARPOL Annex VI to prohibit the carriage of non-compliant fuel oil for combustion purposes for propulsion or operation onboard. The only exemption would be for vessels with an approved “equivalent arrangement” – such as scrubbers– which are already permitted under regulation 4.1 of MARPOL Annex VI, so can continue using HSFO, and ships undertaking research trials of emission reduction and control technology.​  However, the future of scrubbers has come into question. The number of vessels with scrubber will increase from the 240 ships today, but looking at the orderbook, it is estimated that less than 1,100 ships will have scrubbers by 2020. This represents just 2%-3% of the global merchant fleet. The pricing economics to justify the installation on current vessels or spending to incorporate in newbuilds has not been attractive.​  It will be shipyards who will be the obvious beneficiaries as they offer the most cost-effective way to fit scrubbers or build vessels to use LNG, both of which offer long-term commercial fuel cost advantages. In fact, some believe shipyards are on the cusp of another shipbuilding boom. LNG is being pushed by industry coalitions such as SEA\LNG who have voiced their support for the carriage ban, with their view that their members will be instrumental in supplying a global LNG value chain for cleaner maritime shipping by 2020.​ However, it seems that the consensus view is the use of LSFO. ExxonMobil is one of the few oil majors who has invested in upgrades to be able to supply LSFO that meet the IMO’s targets. Their distribution plans highlight they will be able to supply ports in NW Europe, the Med. and Singapore within the next two years, and they will announce additional locations this year.​