Sulphur 2020 – The options

Sulphur 2020 The options

The prescribed reduction in the sulphur content of fuel oil used by ships is only two years away. About 70,000 existing vessels need to be ready to meet the requirements of IMO’s global sulphur limit of 0.50% m/m in 2020. Yet many ship owners are still undecided and have not made up their minds about how to comply with the new regulations. A recent study by ExxonMobil showed that 32% of the respondents predict that a combination of heavy fuel oil, marine gas oil and fuels and blends will be used, whereas 69% believe the cap will lead to the development of new low sulphur fuels. Basically there are four different options for ship owners for compliance:

  1. Compliant fuel oil
  2. Gas oil
  3. Alternative fuel
  4. Emission abatement technologies

In this article we focus on some of the advantages of the compliance options and issues which may arise by opting for one solution or another.

Lately there has been much said about exhaust gas cleaning systems such as scrubbers. Big market players like Maersk have questioned the use of scrubbers for meeting the global sulphur cap. But why? To begin with, a scrubber is a piece of equipment that sprays alkaline water into a vessel’s exhaust to remove sulphur and other unwanted chemicals from the fuel. So, a scrubber’s principal advantage is to enable ship owners to continue burning fuel oil while complying with the new regulations. But there are high costs for retrofits with up to $6 million needed to install the equipment on each vessel and on top of the capital expense is the cost of taking the vessel to dry dock for about a month, not mentioning the added costs dealing with sludge retention and disposal. After installing, scrubbers require high maintenance and specialised personnel. Though the scrubber technology can be cost effective over time, it may not be a long-term solution as the recent equipment is not designed to cope with all of the environmental regulations likely to be imposed on shipping over the next decade.

Other industry players, as well as many politicians in Europe and North America, see liquefied natural gas bunkering as a solution to the shipping industry’s environmental problems. LNG enables 100% reduction of SOx emissions and 90% reduction of NOX emissions compared to heavy fuel oil. Furthermore, the CO2 emissions are 25% lower than those ones from heavy fuel oil and marine gas oil and looking into future LNG also protects against environmental restrictions for shipping on nitrogen, particulate matter or carbon emissions.
But there is a downside to all of this as LNG leaks methane, which has a negative impact on global warming. In fact, the natural gas that can escape while bunkering can raise even higher greenhouse gas emissions than a gasoil-based bunker fuel. Looking from a financial point of view, ship owners and ports are facing high costs for retrofitting current ships and providing the necessary infrastructure in ports if they opt for LNG. At present LNG bunkering is mostly being done by passenger vessels steaming short distances around Scandinavia. Though there are tangible infrastructure developments on the way, the availability and infrastructure remains less than transparent to ship owners and operators. Especially for ships with no fixed trading patterns this becomes an issue as details of how, when and even sometimes exactly where bunkering operations will be carried out are not fully settled.

For many others, marine gas oil may be the way to go. Japanese shipbuilder Onomichi President Takashi Nakabe recently said: “I personally think marine gas oil is the solution for the shipping industry”. As MGO is a proven distillate-based light fuel oil, it already meets the IMO global sulphur cap regulation and the higher standards in near-sea emission control areas. In addition, MGO can be used in most HFO systems and only minor adjustment in auxiliary equipment is needed in some cases, which makes MGO to a straight forward solution for meeting the sulphur limit. In comparison to LNG the cargo capacity of MGO is not restricted, meanwhile, as well as LNG, the price is double compared to HFO. Switching to MGO may also require upgrading to the fuel treatment plant due to the significantly lower viscosity of the fuel. Whereas the capital investment for MGO is low, the operating costs might be very high. During the implementation of the SECA areas the majority of operators simply switched to MGO fuels. If the shipping industry follows the same pattern again, increased MGO prices are inevitable in the short term as refineries would seem to prefer to produce MGO to heavy fuel oil as it is more profitable.

So far, the simplest option for ship owners seems to be opting for 0.5 sulphur fuel. But, as with all the other solutions, there are issues as well. First of all there is no accepted standard for refining 0.5% sulphur fuel. Essentially the sulphur can be reduced from the fuel oil in two different ways: hydrocracking and blending. Hydrocracking requires enormous investments and lead times on the part of refiners, which will very quickly impact the price. As for blending, the process raises the risk of fuel incompatibility as the fuels commingle and settle in the fuel tanks, creating sludge and other problems that can lead to unexpected stoppages or even engine failure. As long as there is no standard specification for low sulphur fuels engine manufacturers can’t give appropriate operational and maintenance advice, which results in uncertainty. However, fuel treatments, like Aderco, can meet these concerns. They reduce the likelihood of unexpected stoppages and sludge rejects as they are designed to solve fuel-related problems while protecting the fuel pump, injection system and the whole operation before, during and after combustion.

Just by looking at these options it seems that there is not just one solution for the shipping industry to comply with the sulphur cap in 2020. The marine sector is heading into a mixed fuel future. Overall, it’s not only about making the right decision for meeting the directive, but also saving your fuel investment from instability and incompatibility issues.

What is your opinion? Let us know in the comments down below!

How much will 2020 cost?

There have been a number of estimates of the magnitude of the cost to the shipping community of implementing the global 0.50% sulphur cap in 2020.

Recently, Wood Mackenzie grabbed the headlines by saying global bunker fuel costs could rise by up $60 billion annually from 2020, in a full compliance scenario, when the International Maritime Organization (IMO) regulation kicks in. The underlying assumption for this headline figure was based on the majority of the world fleet switching from high sulphur fuel oil (HSFO) to marine gas oil (MGO). “A combination of higher crude prices and tight availability of MGO could take the price of MGO up to almost four times that of fuel oil in 2016, and eventually cost the entire industry additional US$60 billion annually,” Wood Mackenzie said in a press release about the findings of a study undertaken by the research and consultancy firm.


You can find the whole article at:

Global bunker fuel cost could rise by up to US$60 billion annually from 2020

Global bunker fuel cost could rise by up to US$60 billion annually from 2020, when the International Maritime Organisation’s (IMO) 0.5 wt% sulphur cap regulation for bunker fuels kicks in.

Traditionally, fuel oil is used by the shipping industry as bunker fuel. In 2016, global demand for high sulphur fuel oil stood at almost 70% of overall bunker fuels.

With the implementation of the IMO regulation in 2020, the shipping industry will have to deliberate a switch to alternative fuels such as marine gas oil (MGO). This will enable the sector to meet the regulation’s sulphur specifications. Alternatively,  shippers could install scrubbers, a system that removes sulphur from exhaust gas emitted by bunker fuel.

Analysis – IMO 2020 regulation could cost shippers billions | Wood Mackenzie

Not Just A Shipping Problem

There are quite few options available to shipowners to reach compliance with the new sulfur cap. All of those have two things in common – high costs and uncertainty. Whichever way shipping companies decide to go, each one of them will have to make long-term expensive bets in an already troubled market. These decisions, like ripples in the water will affect their business strategies and investment decisions, like sale and purchase of tonnage for years to come.

In the meantime, what seems inevitable is the upcoming dramatic increase in freight rates across all the shipping sectors. Bunker costs may take up 70 – 80 % of total voyage expenses. So, as their costs rise, shipowners will do the most natural thing – try to pass those on to their customers. Of course, in the currently weak freight market shipowners do not have enough clout to make clients take up the whole bill, but the lion’s share will still have their to be absorbed by those who pay for the transportation of goods. And numbers here can be quite substantial.

If we take an example from the dry bulk market, a delivery of 50,000 mt of sugar on a modern Supramax vessel from Brazil to North China, using MGO instead of the standard 380 CST fuel oil may cost around $225,000 extra in bunker costs, considering the current bunker price spread in the port of Singapore. As this spread by some estimates could get two to four times wider in 2020, the added expenses may easily go over half a million dollars. This is just for one voyage.

If we assume that China imports 2.5 million mt of Sugar from Brazil and does it all on Supramax vessels, the total extra bunker costs on just this single arbitrage may easily reach $25 million. A sum that would have to be absorbed by higher freight rates.

While this is an extra pain for shipowners, considering the weakness in the freight market, it can be both a problem and a blessing for traders. Depending on which side of the fence they are sitting on. High freight is an issue for long-haul suppliers as it makes their CIF price less competitive. For example, it can make Brazilian sugar less attractive for Chinese buyers. China might instead pay more attention to closer suppliers like Australia or Guatemala and those countries might find higher bunker prices to be a blessing.

Such examples are easily found in pretty much every commodity market across every shipping sector. So at the end of the day, one thing is for certain: as shipping tries to adjust to the new sulfur cap, it will not be an isolated battle. Anyone with the skin in the game of seaborne trade will feel this one way or another.


Alex Younevitch, managing editor, freight markets, S&P Global Platts