New fuel regime

With the global upper limit on the sulphur content of ships' fuel oil reduced to 0.50% from 1 January under new regulation of the International Maritime Organization (IMO), the bunkering market structure has definitely changed. Despite the toughened environmental requirements, the shipping industry has not faced insurmountable difficulties so far, operation of Russian ports is normal.

According to a variety of sources, the transition of the global shipping industry to low-sulphur fuel is relatively smooth. Is it a hasty conclusion just three weeks after the IMO 2020 regulation came into force?

Is heavy fuel oil under a ban?

From 1 January 2020, under IMO's MARPOL convention for the prevention of pollution from ships, the sulphur content of fuel oil used by ships shall not exceed 0.50%. 

Three weeks after the landmark date, high-sulphur fuel oil is still in demand in the Baltic and the Far East ports.

As the bunker suppliers in the Baltic region told IAA PortNews, high-sulphur fuel oil is being sold to owners of ships equipped with scrubbers. “They are mostly line ships of Transfennica, Finnlines, Spliethoff. Also, quite a big number of tankers equipped with scrubbers call at the ports of Ust-Luga and Primorsk”, says representative of a bunkering company operating in the port of Saint-Petersburg.

In the Far East region, bunker suppliers are uncertain about availability of scrubbers on ships they provide with fuel and how this fuel is to be used. 

High-sulphur fuel oil is not in demand for bunkering in the southern ports. It is mainly used for blending.

Amid the bunkering market developments some countries see opportunities for a new profitable business. According to Reuters, U.S. refiners are scooping up cheap high-sulfur fuel oil for processing from Russia and the Baltic states as they take advantage of new shipping rules that have cut demand for the dirtier marine fuel. Refiners are buying HSFO to replace the loss of crudes from Venezuela and Iran that have been barred by U.S. sanctions.

VLSFO is on board

Bunker prices in Russian ports have surged this year. However, this should be attributed to global oil prices rather than to new MARPOL regulation. The first weeks of 2020 oil prices were increasing amid the tensions between the USA and Iran. It should be noted though that IMO requirements entailed the deficit of IMO 2020-compliant fuel in many ports of Russia and diesel fuel in the Far East region.

Representatives of the Far Eastern bunkering companies say that the acquired volumes are not enough for all the required bunkering operations so far. Besides, fuel delivery is delayed due to congestion of railways with trains carrying coal. In this situation, many companies undertake large-scale blending which considerably affects the quality of fuel.

Igor Sharkov, Director of FESCO’s Vladivostok branch, told IAA PortNews about the deficit of low-sulphur fuel and cases of unsatisfactory quality fuel supply. 

“Bunkering operations are performed without delays but we suffer from a scarcity of low-sulphur fuel which is reflected by its market price. Besides, there were cases, including in foreign ports, of obtaining heavy fuel oil not complying with IMO requirements. In some instances, FESCO had to return fuel to suppliers due to its unsatisfactory quality”, he said.

Meanwhile, Igor Sharkov emphasized that despite substantially growing prices of low-sulphur fuel oil, it is still more competitive than diesel fuel.

In the Baltic region, the situation is quite the opposite since it was already prepared for new environmental requirements. The use of low-sulfur fuels (containing at most 0.1 percent sulfur) has already been a reality in ECAs including the Baltic Sea for five years.

This market players confirm availability of compliant fuel, VLSFO, with no deficit of it in the region.

North-Western Shipping Company PJSC says that from 1 January 2015 its vessels have been running on ULSFO (with 0.1-pct sulphur content) in SECAs comprising Baltic Sea, North Sea and English Channel. Ships operating in the southern regions of Russia, in the ports of the Black and Mediterranean Seas run on VLSFO. “Shipping companies do not suffer any severe shortage of fuel”, comments NWSC.

Ship owner are so far unable to offer an assessment of using new types of low-sulphur fuel due to a short period of their use. “Fuel quality can be assessed through engine endurance, - says the company representative. – Over a short period of using low-sulphur fuel we have had no complaints”.

According to IAA PortNews, the price of VLSFO 0.5% at the port of Saint-Petersburg is among the lowest in the Baltic region and worldwide staying at the level of $480 pmt.

It should be noted that bunkering with VLSFO 0.5% at the port of Rotterdam will cost $527 pmt, at the port of Singapore – $646 pmt, at the port of Piraeus – $622 pmt.

Environment-oriented but not environmentally friendly

Hardly had the new regulation come into effect, when VLSFO was found to have higher black carbon emissions than its forebear, high sulphur fuel oil (HSFO), suggests a submission made by Finland and Germany to the International Maritime Organization (IMO).

The detailed submission, funded by the German Environment Agency and assisted by class society DNL GL and engine maker MAN ES, shows that new blends of marine fuels with 0.50% sulphur content can contain a large percentage of aromatic compounds, which have a direct impact on black carbon emissions.

The submission urges that aromatic content be included in the specification of marine fuels of the ISO 8217 petroleum standard.

A number of research and production associations have already called to ban low-sulphur marine fuel with high aromatic content from being used by ships especially in Arctic waters.

New challenges

As of 20 January, 10 cases of compliant fuel being unavailable had been reported in IMO's Global Integrated Shipping Information System (GISIS); and the dedicated email address established by the IMO Secretariat has not received any specific correspondence reporting issues with implementation.

IMO Secretary-General Kitack Lim said "I believe it is testimony to the diligence and dedication of IMO, its Member States, the shipping industry, the fuel supply industry and other relevant industries that such a major rule change is being implemented successfully without significant disruption to maritime transport and those that depend on it."

Meanwhile, in India, a lack of IMO 2020-compliant fuel threatens to bring coastal shipping operations on the East Coast to halt. Bunker suppliers informed that east coast needs about 30,000 tonnes of compliant fuel per month to meet the requirements of ships plying on local routes. On the other hand, the west coast is relatively better due to the availability of the fuel in Kandla and Kochi for most coastal ships.

Zero-carbon shipping

The shipping industry is expected to undergo even more radical changes. At the World Economic Forum in Davos this week, IMO Secretary-General Kitack Lim called for commencing development of measured focused on reduction of CO2 emissions from ships. IMO's strategy is to reduce sector-wide emissions by at least 50% by 2050.  

"Now is the time to start developing the vessels, the fuels, the delivery mechanisms and all the other necessary infrastructure to support zero-emission shipping", said Kitack Lim.

According to the analysis of University Maritime Advisory Services (UMAS), the scale of cumulative investment needed between 2030 and 2050 to achieve the IMO target of reducing carbon emissions from shipping by at least 50% by 2050, is approximately USD 1-1.4 trillion. The estimate of investments required is based on ammonia (NH3) being the primary zero carbon fuel choice adopted by the shipping industry as it moves towards zero carbon fuels. Under different assumptions, hydrogen, synthetic methanol, or other fuels may displace ammonia’s projected dominance, but the magnitude of investments needed will not significantly change for these other fuels. To avoid shifting emissions upstream, it is important that efforts to decarbonize shipping also include the decarbonization of fuel production. The analysis is therefore based on the use of low/zero carbon hydrogen as input to the production of ammonia.

Marina Borisenko, Vitaly Chernov