About
2 1/2 years from now, the global fleet of merchant ships will have to reduce
drastically how much sulphur their engines belch into the atmosphere. While
that will do good things like diminishing the threat of acid rain and helping
asthma sufferers there’s a $60 billion sting in the tail. That’s how much more
seaborne vessels may be forced to spend each year on higher-quality fuel to
comply with new emission rules that start in 2020, consultant Wood Mackenzie
Ltd estimates.
For
an industry that hauls everything from oil to steel to coal, higher operating
costs will compound the financial strain on cash-strapped ship owners, whose
vessels earn an average of 70 percent less than they did just before the 2008-09
recession.
The
consequences may reach beyond the 90 000-ship merchant fleet, which handles
about 90 % of global trade. Possible confusion over which carriers comply with
the new rules could lead to some vessels being barred from making deliveries,
which would disrupt shipments, according to BIMCO, a group representing ship
owners and operators in about 130 countries.
Oil
refiners still don’t have enough capacity to supply all the fuel that would be needed and few vessels have embarked on costly retrofits.
“There will be an absolute chaos,” said Lars Robert Pedersen, the deputy
secretary general of Denmark-based BIMCO. “We are talking about 2,5 million to
4 million barrels a day of fuel oil to basically shift into a different
product.”
Merchant ships around the world are required to cut the amount of
sulphur emitted under rules approved in October by the International Maritime
Organisation, a UN agency that sets industry standards for safety, security and
the environment. As well as contributing to acid rain, sulphur, combined with
oxygen, can form fine sulphate particles that can be inhaled by humans and may
cause asthma and bronchitis, according to the U.S. Environmental Protection
Agency.
There are two main ways to comply: vessel engines are fitted with
scrubbers that would eliminate the pollutant, or oil refiners will have to make
lower emission fuels. The limit on sulphur content will drop to 0,5 percent
from 3,5 %.
Not enough
So far, neither the refining industry nor shipping is doing
anywhere near enough for owners to achieve compliance in 2020, according Iain
Mowat, a senior analyst at Wood Mackenzie. “Ship owners are reluctant to
install scrubbers to continue using the same oil because of uncertainties and
lack of funding,” Mowat said. “And most refineries won’t invest to convert
heavy fuel because that will cost more than $1 billion and take about five
years to complete.”
Just 2,2 % of the fleet will have scrubbers installed by 2020 that
would allow them to continue using current fuels, estimates the International Energy
Agency in Paris, an adviser to 29 nations.
“The compliant technical options are still very immature, and it
is hard for us to see them as a real compliance option for our fleet,” said
Aslak Ross, head of marine standards at Maersk Line, the world’s biggest
container shipping company. For Maersk alone, the additional fuel cost will
amount to billions of dollars annually, he said.
$4 million per
engine
Most ships will switch to using a mix of lower-sulphur
fuel oil or more-expensive middle distillates, according to Jan Christensen,
head of global bunker operations at Bomin Bunker Holding, a Hamburg,
Germany-based fuels supplier.
The
scrubbing technology could cost as much as $4 million per engine, depending on
its size, said
Nick
Confuorto, president and chief operating officer at scrubber supplier CR Ocean
Engineering. Retrofitting engines might be worth doing, possibly paying off in two
years, because the price of compliant fuel probably will be three times higher
than what ships currently burn, he said. “While the world’s largest owners are
already reserving spaces for refits, smaller operators are taking a more
wait-and-see approach,” said Neil Carmichael, chief executive officer at Pacific
Green Technologies.
Wood
Mackenzie estimates about 70% compliance globally by 2020 and full compliance
by 2025 after
a
transition period. Tough markets Merchant ships earned an average of about $9
800 a day this year, according to data from Clarkson Research Services Ltd,
part of the world’s biggest shipbroker. Ten years ago, they were earning about $34
000. In the industry’s three main markets - container shipping, dry-bulk cargo
transportation, and oil tankers - there’s been evidence of overcapacity and
depressed rates over the past several years.
“Those
tough markets are making it harder for owners to secure investment and finance
they need to comply, which means the IMO and its member states will probably
permit some kind of transition period when the 2020 rules begin,” says Simon
Bennett, policy director and external relations at the International Chamber of
Shipping.
“If there were no flexibility on January 1 and owners couldn’t get fuel, then that would have an impact on world trade,” Bennett said. “Either way, this will have a profound impact on the economics of shipping.
Original
Source: Bloomberg and extracted from: 
