IMO to impose sulphur cap by 2020

The International Maritime Organisation's (IMO) has voted to implement a maximum of 0.5pc sulphur content in marine fuels by 2020, following a discussion on how much low sulphur fuel will be available by this date.

The decision was made at the 70th meeting of the IMO's Marine Environment Protection Committee (MEPC70) in London, and will see a global reduction in the sulphur content of marine fuels from the current 3.5pc.

The IMO's official study gave support to the 2020 date, although some IMO members and voices in the shipping industry were pushing for 2025, saying that low-sulphur fuels could be pushed into shortages by the expected sharp upswing in demand for shipping.

The IMO's official report showed the availability of low-sulphur fuel will be able to meet demand in all the scenarios it looked at, from low to high demand models. The rate of refinery upgrading work will exceed the higher demand for better quality, predominantly distillate fuels, according to the report by environmental consultant CE Delft, which said any global shortages of low-sulphur fuel supplies would be "improbable".

There are different ways the 0.5pc sulphur marine fuel regulation could be achieved. At this week's Argus Fuel Oil & Feedstock conference in Miami, industry participants presented different options. The most commonly accepted view is that refiners should invest in cokers and increase output of distillates to blend high-sulphur resid down to 0.5pc sulphur. Others thought low-sulphur VGO in a blend with residual fuel oil would be the most cost effective way to meet the regulation.

Now the IMO's long-waited decision is made, there could be accelerated investments by shipowners in LNG-burning engines and marine exhaust scrubbers. The one thing the industry unanimously agrees with is that the new 0.5pc sulphur bunker blend will be more expensive compared with conventional high-sulphur 380cst.

But fuel oil prices are likely to come under downward pressure, with the regulations eliminating much demand for the product while boosting marine gasoil demand and supporting values relative to fuel oil. Market participants anticipate an increased demand for tank space for bunker blending to meet the new regulations.

Any impact on the VGO market is unlikely before the middle of next year — the deadline is too far out on the horizon, desulphurisation capacity is limited, and the process is expensive.

The MEPC also voted today to establish two nitrogen oxide (NOx) Emission Contol Areas (NECAs) in the North Sea and Baltic Sea. This will compel vessels built after January 2021 to meet stringent NOx emissions limits in these regions, to be met by either removing NOx from exhaust fumes or through powering vessels using LNG. An NECA was established in North American waters at the start of 2016.