Sulphur Cap: Refineries, Bunker Suppliers and Shipowners

The implementation of the sulphur cap may present more problems than first thought.

In October 2016 the IMO decided that the 0.5 per cent global sulphur cap is to be introduced by 2020. The decision caused yet another issue that shipowners must solve, however the shipowners will not be the only ones affected.

Looking at the fuel that ships consume now, many do not know that refineries do not choose to make fuel oil. The fuel is merely a by-product of the refining process, the residue left at the end. The fact that the shipping industry has been able all these years to fill the demand gap for this product has been very fortunate.

With a large part of the fuel oil no longer being suitable for the shipping industry, which makes up 35 per cent of the fuel oil business, the refineries must find an alternative use for the by-product. Until now, refineries have chosen to not further process the fuel as its price is less than that of crude. With a rise in demand for more refined products, refineries might invest in technology, such as adding catalytic crackers or a cokers, that will allow them to crack the fuel oil into higher value products. Every refinery is different and will implement different technologies, depending on its economics. With the investment having to take place, refineries might wish to pursue a different market than shipping to push their “new” products. If refineries do not wish to invest in such technologies, or wish to wait until the market stabilizes, they can choose to refine low sulphur crude – which in turn may move the sweet oil market.

The bunker suppliers will need to procure stable and clean fuels from refineries, some of which will have had recent upgrades and might still be ironing out production, blend them and supply them at major hubs – and all of this at a market competitive price. The need for higher value bunkers will also mean that the suppliers will need to increase their credit lines to the customers.

The need for fuels that meet ISO standards is very important, after the introduction of the 1 per cent Sulphur fuel policy across the ECA, many shipowners suffered due to contaminated fuel. The concentration of Cat Fines in the fuel oils saw an increase. Cat Fines (or catalytic fines) are hard ceramic compounds used in the cracking process and are mostly removed. These compounds may enter the engines and act as abrasives, causing substantial damage to the engine.

On the shipowner side – there are two options that can be pursued:

The shipowner can either burn low sulphur fuel or burn high sulphur fuel and remove the sulphur from the exhaust emissions.

If the shipowner decides to burn low sulphur fuel, the operations department must make sure that the fuels bought will be of good quality as to not cause any engine damage. The change to a lighter fuel will also mean a change in lubricants, one more thing that must be considered.

If the shipowner opts to add abatement technology, they must make sure that, firstly, they will be accepted as an alternative to low sulphur fuel, and secondly, that over the long term, high sulphur fuel will be available at ports. California, for instance, which had adopted its own specifications for low sulphur fuel back in 2009, had a clause allowing “alternative options” for removing the particles – the clause was then taken out and scrubbers are no longer an option.

Enforcing the regulation is a totally different story; states will have a very hard time chasing down violators, especially since all the evidence will have gone up in smoke, leading some to believe there will be a total ban on high sulphur fuel aboard vessels. During the International Chamber of Shipping conference in London last week, Emanuele Grimaldi argued that port authorities should be pragmatic when enforcing the 2020 cap as owners and operators could struggle to fully comply with the new regulation. There is a long road ahead with environmental compliance regulations coming online; it will not only be shipowners, but also the shipping and energy industry which will need to readjust.