The global fleet of merchant ships will have to reduce drastically how much sulfur their engines belch into the atmosphere in little more than 2 1/2 years from now. There’s a $60 billion sting in the tail by this even though there would be good things like diminishing the threat of acid rain and helping asthma sufferers.
Consultant Wood Mackenzie Ltd estimates that to comply with new emission rules that start in 2020, that’s how much more seaborne vessels may be forced to spend each year on higher-quality fuel. Now vessels earn an average of 70 percent less than they did just before the 2008-09 recession and the higher operating costs will compound the financial strain on cash-strapped ship owners, which will be a burden for an industry that hauls everything from oil to steel to coal.
The 90,000-ship merchant fleet, which handles about 90 percent of global trade, might not be the only one to be affected by the consequences. According to BIMCO, a group representing ship owners and operators in about 130 countries, shipments could be disrupted by possible confusion over which carriers comply with the new rules that could lead to some vessels being barred from making deliveries. Few vessels have embarked on costly retrofits and oil refiners still don’t have enough capacity to supply all the fuel that would be needed.
“There will be an absolute chaos,” said Lars Robert Pedersen, the deputy secretary general of Denmark-based BIMCO. “We are talking about 2.5 million to 4 million barrels a day of fuel oil to basically shift into a different product.”
Under the rules approved in October by the International Maritime Organization, a UN agency that sets industry standards for safety, security and the environment, merchant ships around the world are required to cut the amount of sulfur emitted. According to the U.S. Environmental Protection Agency, sulfur, combined with oxygen, can form fine sulfate particles that can be inhaled by humans and may cause asthma and bronchitis apart from contributing to acid rain.
Oil refiners will have to make lower-emission fuels or vessel engines are fitted with scrubbers that would eliminate the pollutant – these are the two main ways to comply. The limit on sulfur content will drop to 0.5 percent from 3.5 percent.
According Iain Mowat, a senior analyst at Wood Mackenzie, neither the refining industry nor shipping is doing anywhere near enough for owners to achieve compliance in 2020 so far.
“Ship owners are reluctant to install scrubbers to continue using the same oil because of uncertainties and lack of funding,” Mowat said. “And most refineries won’t invest to convert heavy fuel because that will cost more than $1 billion and take about five years to complete.”
The International Energy Agency in Paris, an adviser to 29 nations, estimates that just 2.2 percent of the fleet will have scrubbers installed by 2020 that would allow them to continue using current fuels.
“The compliant technical options are still very immature, and it is hard for us to see them as a real compliance option for our fleet,” said Aslak Ross, head of marine standards at Maersk Line, the world’s biggest container shipping company. He said that the additional fuel cost will amount to billions of dollars annually for Maersk alone.
(Adapted from Bloomberg)