How can we secure fuel supply following Sulphur 2020?

Wallenius Wilhelmsen is in a good position to handle the changes in the fuel market that the IMO’s upcoming regulatory changes are expected to bring. VP of Sustainability Roger Strevens explains why.

Securing fuel supply

The IMO 2020 global cap change aimed at dramatically reducing emissions of sulphur oxides (SOx) from vessels is arguably the biggest regulatory change to ever hit the industry.

The global cap on sulphur in fuels reduces from 3.5% to 0.5% on 1st January 2020, with no possibility of deferral. It’s important for cargo shippers and freight forwarders to know what’s coming, as there may well be consequences for your cargo.

Sulphur 2020 compliance – the options

Ship owners and operators are facing many unknowns on the path to compliance, not least technical feasibility. Not all compliance choices are viable for all types, sizes and ages of vessel.

The main compliance choices post-2020 fall into three categories:

  1. Low-sulphur fuels: Very Low Sulphur Fuel Oil (VLSFO), which is fuel that contains less than 0.5% sulphur, and Marine Gas Oil (MGO)
  2. High-sulphur fuels with a scrubber
  3. A dual-fuel solution with LNG

In the world of RoRo, the majority of vessels will comply with the first option. Scrubbers, which are very expensive to retrofit, are not necessarily viable for all vessels.

It is anticipated that about 2,000 vessels will be fitted with scrubbers by 2020. That may sound like a lot, but it represents just 4% of deep-sea vessels worldwide.

Projections from various oil industry experts, including the International Energy Agency, show that from the end of 2019, demand for VLSFO is going to increase sharply. They also expect to see an increase in the demand for MGO. To put the change in context, the sulphur 2020 rule change is predicted to involve switching 3 million barrels per day from one type of fuel to another. That’s about ten times as much as was involved in the 2015 ECA change.

Meeting the future fuel supply challenge

With new fuels expected to hit the market in the run-up to 2020, increased fuel compatibility issues are anticipated. The reality is that two batches of low-sulphur fuel may not always be compatible with each other. If such fuels are mixed in the same tank, there’s a risk of forming a wax-like product that is unusable.

As for availability, it’s not clear yet which fuels will be available at which ports.

Each of these elements represents a vital link in the fuel supply chain and if any one of them fails, it can become a costly and time-consuming problem for the owners of both the vessel and the cargo.

Securing fuel supply for Wallenius Wilhelmsen’s vessels

In view of the fundamental impact of the regulatory change that is coming, it is a safe bet that a period of disruption lies ahead. The degree of disruption a cargo shipper can expect will be largely determined by the operational model and size of the carrier.

Liner operators like Wallenius Wilhelmsen that follow a fixed schedule have the advantage of planning bunkering well in advance. That facilitates consolidating bunkering at fewer ports and making large, long-term deals with suppliers. These factors are an advantage when it comes to securing fuel availability compared to smaller players who are operating on a tramp basis. Being ‘first in line at the fuel pump’ can also have advantages when it comes to fuel quality.

While no one at Wallenius Wilhelmsen thinks the change will be plain sailing, we are making the right preparations and have the right attributes to help us avoid sailing into the eye of the storm.

Through proactive planning, Wallenius Wilhelmsen is strongly placed to help shippers navigate any uncertainty and mitigate any disruption caused by these important global regulations.

Fast facts

Deferral of Sulphur regulation

The question of deferral to 2025 has been asked and answered. There is no political will at the IMO for deferral and, even if there were, the amount of time required to implement a regulatory change is greater than the amount of time between now and 1st January 2020.

Carriage ban

Having fuel with sulphur content of more than 0.5% onboard a vessel will be an offence, unless the vessel has a functional exhaust gas scrubber. This strengthens the hand of the enforcement agencies, because they won’t have to prove that a carrier has been using non-compliant fuel, just that it’s on board. While not yet formally adopted, the carriage ban is expected to be confirmed later this year.

Fuel oil non-availability report (FONAR)

This exception can be obtained if a vessel doesn’t have access to a compliant fuel. However, to ensure it’s not a long-term loophole, doing so will require a high burden of proof. If a vessel is holding excess high-sulphur fuel under a FONAR and arrives at a port where compliant fuel is available, it’s possible that the existing fuel will have to be offloaded, causing delays for the cargo.

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