IMO 2020

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On the 1st of January 2020 the International Maritime Organization (IMO) will implement its latest regulation known as IMO 2020. The IMO is a United Nations agency responsible for policing the world of shipping. This regulation is in the name of environmental concern as it will reduce the sulphur content in ship fuel.

The current percentage of sulphur contained in ship fuel is 3.5% and the new law will see that figure cut to 0.5%. Ships will have to turn from their HSFO (high sulphur fuel oil) and make use of distillates and blends. HSFO is residual oil, meaning that it is essentially the waste product of refineries whose focus is on cleaner fuels such as diesel, petroleum and jet fuels.

In the past upgrading to the expensive process of hydrotreating was not worth it nor was it necessary for refineries. But IMO 2020 changes that. A number of refineries are advanced enough to upgrade and equip themselves to produce distillate or are at least on track to do so by 2020. The simpler refinery’s, however, will face a challenging future should they not be able to adapt.

Shipping companies on the other hand have a few options to choose from in order to comply with IMO 2020. Marine Gas Oil (MGO) is one of the most likely options. This fuel oil is a distillate with a sulphur content below that of 0.5%. MGO is however significantly more expensive than HSFO making it much more costly to shipping companies. Ultra low sulphur fuel oil (ULSFO) is also a plausible alternative to for ships. However, ULSFO is a blend. This means that ships will have to address the matter of fuel oil consistency. The challenge regarding fuel oil consistency is that different suppliers may have different grades of the same blend making it tricky when it comes to refuelling at the different ports. Lastly ships can opt for the fitting of scrubbers. These are devices installed on a ship that purify emissions. This would mean ships with scrubbers would be able to burn the traditional HSFO. A benefit of this would be the anticipated decrease in price for the fuel as demand increases for MGO and ULSFO. However, a large downside for shipping companies would be the cost involved in getting scrubbers. The financial burden of installation and maintenance are heavy. There is also a significant period that a ship must spend out of the water in a dry dock in order to be fitted with a scrubber.

With less than 9 months remaining many questions will need to be answered by refineries, bunker traders and shipping companies alike. However, as much as there are challenges ahead for the industry there are opportunities too.