Sulphur So Good Impacts Of IMO Target To Reduce Sulphur Emissions In Shipping Sector As the world shifts towards cleaner fuel amid growing concern over cl...

Sulphur So Good Impacts Of IMO Target To Reduce Sulphur Emissions In Shipping Sector As the world shifts towards cleaner fuel amid growing concern over climate change and the impacts of human activities on the environment, the marine industry has stepped up its game to reduce its carbon footprint.

This has been done through a series of efforts including the introduction of conventions and protocols, adjustments in ship design, and operational and technical approaches to enhance energy efficiency and reduce emissions from shipping and related activities.

A major development has taken place in the shipping sector which is set to trigger potentially seismic impacts not only in this sector but also to related sectors and supply chains.

The International Maritime Organisation (IMO), the specialised United Nations (UN) agency promoting safe, efficient and clean shipping, has set a global limit of 0.50% m/m (mass by mass) for the content of sulphur in fuel oil used on board commercial vessels from January 1, 2020.

The current limit for sulphur for heavy fuel oil or bunker fuel, used on most vessels, is 3.5% m/m.

This watershed development will significantly lower the amount of sulphur oxide (SOx) – one of the most environmentally damaging and polluting greenhouse gases (GHGs) along with nitrogen oxide (NOx) and carbon dioxide (CO2) – released from ships into the environment.  Other discharges from shipping which are harmful to the environment are ozone depleting substances, volatile organic compounds and shipboard incinerators discharged from vessels.

The reduction of SOx from shipping – an activity that facilitates an estimated 90% of the world’s trade by volume – should have a positive impact on marine environment which has come under pressure from growing shipping traffic.

Besides facilitating trade, ships of all kinds and sizes are crucial in marine economic activities such as marine tourism, fishery, port operations, and offshore oil and gas (O&G) exploration and production.

SOx and other GHGs have detrimental effects not only to the environment but also to human health.

Standing to also benefit from this game-changing development are coastal communities especially those in close proximity to commercial ports, cruise terminals, O&G supply bases, fishing jetties and shipyards.  With the setting of this limit – agreed upon by IMO member states during IMO’s Marine Environment Protection Committee meeting in October 2016 –  the shipping sector will be subjected to an overhaul in terms of its fuel use and its approach towards emissions and marine environment protection.

The shift is almost as profound as when ships started to use coal to power steam engines, marking a departure from using sails.

Effects on shipowners and the supply chains With the affirmative setting of the deadline by IMO, and with 2020 being a mere ~1.5 years away, shipowners and stakeholders along the supply chains related directly and indirectly to shipping are bracing themselves for massive changes as a result of the lower sulphur cap target.    For shipowners, there is already a scramble to start converting their vessels to use fuel oil (including oil used in main and auxiliary engines and boilers) that emits less SOx hence less polluting.

These include distillates such as methanol, and liquified natural gas (LNG).

Both clean fuels are recognised by IMO in its International Code for Ships Using Gases and Other Low Fuels a.k.a.

the IGF Code adopted in 2015.

Alternatively, shipowners can still continue to use heavy fuel oil but with technical modifications to their ships’ engines by fixing scrubbers (exhaust gas cleaning systems) to reduce the emission of SOx.

Either way, these will incur higher costs to them, which are amplified given the prolonged downturn in the shipping sector amidst sluggish growth in global trade and economy, low charter rates and oversupply of shipping tonnage.

With the shipping sector coming under growing pressure to lower its carbon footprint, the introduction of the sulphur limit will also add to the regulatory pressure already underpinning shipowners.

The limit set by IMO will surely bring more stringent regulatory focus on them in the next year and a half as they sail towards the January 1, 2020 deadline to comply with the sulphur emission target.

Tighter regulations and the need for compliance add to the costs and will further pile on the pressure to shipowners already reeling from a slew of regulations in areas such as navigation safety, maritime security, environmental protection and seafarers’ welfare.

The imposition of the new global limit for sulphur will also affect shipping companies’ deployment of their fleet.

The limit will bring about tighter restrictions in designated Emission Control Areas (ECA) and in environmentally fragile and vulnerable areas deemed as Particularly Sensitive Sea Areas established by IMO.

The use of low sulphur-compliant fuel oil such as methanol is only appropriate for short sea services and ECA instead of long haul, cross-oceanic voyages.

Shipowners will have to adjust their selection of ships and their routes accordingly to ensure compliance with the sulphur cap.

This rather dramatic turn of events for more stringent sulphur specifications at sea will certainly reverberate throughout the supply chains of actors supporting shipping.

For starters, suppliers of bunker fuel, estimated to be used on 75% of the world’s vessels, will suffer a drop causing major impacts to its producers, suppliers and distributors.

Oil companies will have to shift to producing / distributing low sulphur fuel oil (LSFO) such as distillates or sulphur-free LNG, or by producing fuel with less sulphur emissions by mixing high sulphur fuel oil (HSFO) with gasoil.

Refiners must also make necessary adjustments to cater to this shift in the form of investing in capacity development and expansion to produce more LSFO to meet growing demand from shipowners.

Other players along the marine industry supply chains will also need to step up to the plate and cater to the growing demand for LSFO.

These include ports providing bunkering services that need to adjust their service offerings to facilitate shipowners calling at their ports to use less HSFO and more LSFO and LNG.

Manufacturers of marine equipment need to shift to producing engines and boilers that emit lower sulphur, while oil companies will have to offer a new range of lubricants that can protect those equipment from wear and deposits.

Shipyards should quickly tap into the growing demand for scrubbers by offering retrofit services to cater to adjustments to ensure stability and to accommodate sludge handling and waste disposal.

They must do so at competitive costs and deliver the vessels in a timely manner as shipowners scramble to fix scrubbers to comply with the lower sulphur requirement.

On the regulatory side, flag states and port state controls must come up with the necessary framework to ensure effective administration, implementation and compliance of the lower sulphur limit.

IMO is not responsible for establishing fines or sanctions for shipowners who do not comply as it only monitors the sulphur content of fuel oil used on ships globally.  However, it can deem ships not in compliance with the sulphur limit as unseaworthy, which has a bearing on charter party and liability insurance covers.

In this regard, the administrators such as flag states and port state controls must make sure the IMO sulphur limit is consistently and effectively implemented.

To attain this, governments need to invest in assets (for example, measuring devices and surveillance to evaluate smoke plumes and sulphur content) and human capital to identify potential violators and to prosecute wrongdoers.

      Change, the only constant A development in the shipping sector as momentous as the setting of a lower sulphur limit will surely trigger noteworthy changes to shipowners and operators and those supporting their activities.

As seen in this discussion, the changes bring challenges as they do opportunities.

Players in the shipping sector along with others along the supply chains connected to it must brace themselves for the wave of changes, brought about by the shift towards a lower carbon environment and regulatory imperatives to reduce emissions from shipping.

As the jog towards the lower sulphur target turns into a sprint against the looming deadline, there are still uncertainties as to how shipowners and operators can comply with the IMO target.

Foremost in their minds is the question of cost.

Although there has not been any attempt to quantify the financial costs, one suspects that it will be huge.

Shifting to LSFO or sulphur-free oil requires significant investment in equipment, expertise, business arrangements and even strategies.

Even fixing scrubbers to existing ships can incur substantial costs to shipowners with large fleets; it is cheaper to do so while building new ships rather than mounting to existing ones.

The cost to shipowners and their supporting cast to meet the IMO sulphur target is certainly not going to be small.

There could well be a case for consumers, businesses and industries to worry about this, too.

The cost of compliance could be passed down by shipowners to consumers as the former could increase freight rates to compensate for the capex they have to incur to switch from HSFO to LSFO.

In this regard, close collaboration among the stakeholders in shipping – including shipowners / operators, administrators, NGOs, cargo owners, marine equipment manufacturers, charterers, oil companies / distributors and port operators, among others – is essential to ensure a smooth transition to a lower sulphur environment.

The cost should be proportionately shared by all parties in the name of protecting the environment and safeguarding human health.

Assistance should be provided to developing countries lacking in funds, regulatory frameworks, the administrative know-how and technical capacities to make the transition painless and to enable them to meet the IMO target.

Worth considering also is providing incentives to players along the marine industry supply chain and beyond to make adjustments to comply with the sulphur limit.

These could be in the form of tax reliefs or competitive state financing, for shipowners to switch to LSFO and to fix scrubbers onto their vessels and for refinery operators and bunker ports to produce and supply more LSFO.

No country or region should be left behind in the voyage of the shipping sector to reach the shores of a low carbon future.

The 2020 deadline is fast approaching, and all parties in the shipping sector and along the supply chains connected to and dependent on it must work in tandem to ensure the target is met, for the benefit of the environment and human health.

They must seize this golden opportunity for the shipping sector to make profound changes to reduce its carbon footprint, befitting the importance and prominence of the sector to the global economy.

This article was first published in Maritime Risk International, an Informa UK publication, in its May 2018 edition.

NAZERY KHALID  is Honorary Secretary of the Association of Marine Industries of Malaysia (AMIM).

He can be contacted at nazerykhalid@gmail.com..

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