Ship and Bunker – UPDATE: IMO decides on 2020 for 0.5% global bunker sulfur cap

October 27, 2016

The International Maritime Organization (IMO) has decided to implement a 0.5% global sulfur limit from 2020, rather than delaying it for a further five years.

The decision, taken at a meeting in London Thursday, cuts the global sulfur limit for marine fuels from 3.5% to 0.5% from the start of 2020, which will force most shipowners to buy more expensive middle distillate-based fuels and no longer burn fuel oil.

The IMO’s Marine Environment Protection Committee discussed the issue Thursday morning before making the decision in the afternoon.

“The most important thing for us was to ensure a level playing field for our industry,” Anita Makinen, an IMO delegate representing Finland, told S&P Global Platts Thursday. “The refining industry has been telling us everything will be fine.”

Some countries and organizations had previously argued that global refining capacity is unable to meet 0.5% sulfur bunker fuel for the shipping industry by 2020, saying a delay of five years would allow more refineries to upgrade their production to maximize middle distillate output.

“It’s hard to take a rational decision when you’re faced with so few facts,” a delegate from the Bahamas said. “We’re asking another industry to do something we want them to do, and it’s not clear what the result will be.”

A study commissioned by the IMO and presented to the MEPC meeting Monday concluded there would be sufficient supply.

The decision is set to worsen Europe’s fuel oil surplus and middle distillate deficit as bunker demand shifts, and may prompt some refineries to upgrade production to minimize fuel oil output. With most shipowners no longer buying fuel oil and oil-fired power plants being shuttered across the developed world, few outlets will remain for fuel oil.

The decision may also bring a greater sense of urgency to Russia’s refinery modernization program, as Russia is currently the world’s largest producer of fuel oil.

Russia was in favor of delaying the 0.5% sulfur cap until 2025, Yury Melenas, the country’s permanent representative to the IMO, told S&P Global Platts Wednesday. He declined to comment after the decision Thursday.

Some shipowners will continue to burn fuel oil, fitting emissions-cleaning scrubbers to comply with the new regulations. And others operating in more remote parts of the world may choose not to comply at all, guessing that regulators are unlikely to check whether they are burning the right fuels.

“Everybody realises it’s going to take until 2025 until we’ve got a high level of compliance all over the world,” International Bunker Industry Association chairman Robin Meech said in an interview Thursday. “There’s no doubt there won’t be enough fuel available in 2020.”

Meech forecasts about 60 million mt of fuel oil demand from shipowners will remain in 2020, about a quarter of current demand. Only 11 million mt of that will be from vessels using scrubbers, with the remainder taken up by ships not complying with the new sulfur limit, Meech said.

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