Greener and greener shipping: The role of IMO
While pressure of reducing CO2 emissions and other pollution is increasing globally IMO has been taking leading role on taking global shipping industry on to a greener path. Last month (April-2018) IMO agreed to cut green house gas emissions from shipping in half by 2050. Main driver for this self-regulatory GHG cut was that it was seen better for involved parties to decide how to cut emissions rather than unrelated parties without sufficient shipping knowledge to dictate how GHG emissions should be cut. EU and especially Marshal Islands were pursuing even greater emission cuts (up to 70%–100%). Marshall Islands delegation was openly concerned that if rising sea levels are not stopped, their country will eventually sink under water. Meanwhile Saudi-Arabia and USA were against the exact deadlines and exact numbers arguing little bit softer wording on the agreement would have been better.
Another big regulation enforced by IMO has to do with sulfur cap for global shipping. Global sulfur limit for fuel used onboard ships will be lowered from current 3.5% to 0.5% from first of January 2020. Sulfur is known to be harmful especially near ports and cities. Acid rain and direct health issues are felt around the world. Owners basically have three options how to cope: first, like has happened in Baltic Sea and North Sea SECA area, big majority of ships has switched to low sulfur bunkers costing almost twice of what standard IFO 380 does. Differences in viscosity can cause problems especially in older ship engines but that is not expected to be an issue. Second, ships can be retrofitted sulfur scrubbers that wash the sulfur from out from the exhaust fumes before emitting. By using scrubbers ships can still use cheaper high sulfur bunkers but retrofitting scrubbers costs around two million dollars and reduce ships cargo carrying capacity due to space requirements. Third option, viable mostly for new ships, is to opt for using LNG as a fuel. Flipside of this is, that premiums on building LNG fueled ships often exceed ten million dollars. I am sure all options have been well considered by shipping companies but for now it seems that companies are choosing a wait-and-see-approach even though deadline is approaching fast. It has been rather surprising to see how nobody really seems to know what shipping will look like in 18 months especially since shipping is a massive industry not exactly known by its agility.
If after 2020 majority of the ocean-going vessels will start to use low sulfur bunkers, like it looks like is going to happen (considering how slow the adoption of scrubbers has been), is there enough supply? And for what price? If supply is not enough to cover the demand price can skyrocket when suppliers squeeze the easy money out. If this were to happen, would IMO be forced to give one or two-year transition period to smoothen the transition? Not exactly fair for those who opted for scrubbers. I admit, not really a likely scenario especially as big refiners like Shell, Exxon Mobil and BP have been thanking IMO’s capability to make decisions and take shipping into greener direction while also assuring that they will be providing compliant fuel for shipping industry. CE Delft accordingly calculated that refineries have enough capacity to fill the demand even under high demand scenario, however fuel would need to be transported from one continent to another to guarantee global availability, which would eventually be seen on the price .
Those shipping companies who can best predict the effects of post 2020 shipping can possibly gain a big advantage if global available tonnage will reduce due to regulations. Also, interesting to see how the scrapping statistics for Q4-2019 will look like.