Twelve Months to D-Day: Is the Industry Ready for the Sulfur Cap?
As we head into 2019, the sulfur cap regulation remains top of the agenda for shipowners and operators. Effective enforcement of the regulation continues to be a daunting challenge for shipowners and regulators alike, and with only 12 months to the implementation date, the lack of robust enforcement mechanisms is giving rise to widespread concerns - and rightly so.
Fuel safety and quality
Alongside the enforcement challenges, shipowners and operators are faced with fuel compatibility and stability issues. With many shipowners expected to opt for low-sulfur fuels for compliance, it is likely that we will see new blended fuels appearing on the market.
Currently there is little standardization on a global basis regarding the composition and quality of low sulfur fuels, and this may lead to compatibility and stability issues. Increased problems with cat fine contamination, fuel viscosity, flash point and pour point may also arise. Fuel quality has a direct impact on a vessel’s performance, efficiency and profitability, and failure to address these issues could leave ships in a dire situation in the middle of the ocean. Catastrophic engine failures that happened to occur in rough seas would pose a significant risk to those onboard.
In March 2018, over 100 ships were affected by contaminated marine fuels that were bunkered in ports in Houston, Panama and Singapore, with further reports of a recent spread to China. Vessels suffered mechanical issues ranging from clogged pipes and filters to engine breakdown and power loss, leading to insurance claims worth millions of dollars. This has also resulted in the loss of confidence in the quality of the fuel oil bunkered in Panama, resulting in a fall to as low as 278,736t in November after having peaked at an all-time monthly high at 398,360t in March. Without proper checks in place, the sharp rise in bunker quality issues seen in recent months could be an indicator of what may lie ahead when the global sulfur cap comes into effect.
Cost-implications and the risks associated with non-compliance
Another pressing challenging facing shipowners is the need to accommodate the additional investments and costs associated with compliance with the sulfur regulation.
A recent report by Moore Stephens recently noted that vessel operating costs could rise by 2.7 percent in 2018, and by 3.1 percent in 2019 as the global maritime community readies itself for the regulation. Shipping giants CMA CGM and Maersk have reported that it will cost them as much as $1.5 billion and $2 billion respectively to ensure compliance. Furthermore, annual fuel costs for the shipping industry are predicted to increase by up to $60 billion. According to Drewry, based on independent “futures” prices, low sulfur fuel oils will be 55 percent more expensive per tonne than the alternative non-compliant Heavy Fuel Oil (HFO).
Effective enforcement is essential in ensuring a level playing field for the global shipping industry. The significant investment involved in ensuring sulfur compliance and the absence of robust enforcement mechanisms only serves as an incentive for deliberately evading the rules, which come 2020 will leave law-abiding shipowners at a significant financial disadvantage.
Fines and penalties for non-compliance in existing Environmental Control Areas (ECAs) vary significantly. For example, the highest fine in Denmark is currently $60,000 for vessels operating within the ECA, whereas in Belgium it could cost a shipowner $7 million. A recently reported breach by a cruise vessel in France resulted in the captain being fined €100,000 ($114,000) in a Marseille court; the first such ruling in France.
Minimizing barriers to compliance
Regulators and the industry are working collaboratively to address these concerns and ensure a harmonized approach to compliance that will negate the possibility of a two-tier market developing. The recently concluded IMO MEPC 73 meetings ended all speculation about a potential delay in the implementation of the regulation, with the dismissal of a proposed “experience-building phase” after the 2020 sulfur cap comes into effect.
While the message was made loud and clear, the IMO has agreed to a period of gathering data to better understand how some of the challenges associated with the global sulfur cap will be addressed. Furthermore, the formal adoption of a total ban on the carriage of non-compliant fuel by ships without emission abatement technology by the IMO will leave owners with little room for maneuver on compliance.
New guidance is being developed to assist shipowners and operators plan for some of the challenges associated with the sulfur cap and will cover topics such as fuel oil system modifications and tank cleaning, fuel oil capacity and segregation capability, procurement of compliant fuel, fuel oil changeover plans and portable testing standards. But with just one year to go before the regulation comes into force, and with a plethora of questions and unknowns still to address, many are questioning whether there will be sufficient time to address all of these challenges and ensure compliance in an efficient and cost-effective way.
The IMO’s 100th Maritime Safety Committee (MSC) has agreed to develop further measures to enhance safety in relation to use of low sulfur fuel, and has invited member states and international organizations to submit concrete proposals – a move welcomed by the Union of Greek Shipowners and the International Bunker Industry Association (IBIA). This will allow the IMO and industry to collaboratively address safety concerns related to switching to low-sulfur fuels and ensure a smooth transition throughout the shipping industry. The MSC meeting also noted that, while fuel safety needs to be tackled, it should not affect member states’ commitment to implementing the 2020 sulfur rule.
While all eyes are on 2020, it is also worth noting that from January 2019, China will tighten its sulfur restrictions for ships by imposing a 0.5 percent sulfur limit along its entire coastline. Hong Kong and Taiwan have announced a similar move and will implement a 0.5 percent sulfur cap one year ahead of the IMO’s global regulation – leaving shipowners operating in these areas with even less time to prepare.
Separately, Denmark is moving forward with a proposal to publish the names of repeat violators of its sulfur emissions cap in 2019 where the sulfur content of emissions has been limited to 0.1 percent since 2015 under the current ECA. As a direct result of being subjected to public scrutiny, customers may be unwilling to associate themselves with on offending shipowner and stop conducting business with them – affecting profits margins in an already challenging operating environment.
Portable sulfur testing
While these actions and measures are encouraging for the global shipping industry, it is important to provide shipowners and Port State Control (PSC) inspectors with easy access to the data they need to accurately check and prove compliance. It is vital to understand that the policing role of the regulation falls on the individual flag states and not the IMO, which has no authority to enforce its own regulation. Flag states and port authorities have a key responsibility in ensuring compliance. However, the lack of clarity on enforcement may deter flag states from effectively carrying out their duties.
Sulfur compliance has traditionally been implied from the value presented on the bunker delivery note (BDN) . However, this approach is not foolproof and could significantly increase the risk of non-compliance and lead to penalties for shipowners. The laboratory testing of bunkered samples could be used to assure compliance but this often takes a few days and a ship may be far out to sea before it is realized that non-compliant fuel has been purchased. Furthermore, the costs of debunkering and then rebunkering with compliant fuel are very high.
Accurate and reliable portable sulfur testing allows for a spot check analysis of the sulfur content in fuel. This gives PSC the ability to easily ascertain the sulfur content of fuel in situ and efficiently target vessels for full sampling and compliance testing before leaving port. And for shipowners, portable sulfur testing allows them to quickly and easily determine if fuel is compliant, allowing them to take preventative action before non-compliant fuel is bunkered.
The Parker Kittiwake XRF Analyser provides on-site analysis of the sulfur content in fuel on board a vessel, allowing PSC to ascertain compliance almost instantly. The portable XRF provides an accurate indication of sulfur content through the analysis of a small fuel sample in less than three minutes, and test results can be stored electronically, allowing operators to manage compliance audits more efficiently. More significantly, the portable device can also be used to measure a range of wear metals in lubricating oil, allowing operators to quickly identify potential damage in cylinder liners, bearings, piston rings, gears, stern lubes and hydraulic systems.
Looking ahead to 2019
2019 will prove to be a busy year for shipowners and regulators. While some concrete progress has been made towards ensuring the robust implementation of the global sulfur cap, many questions remain unanswered.
While the IMO continues to address the uncertainties around enforcement and compliance in the industry, it is key to provide PSC inspectors and shipowners with access to readily-available technology to test fuel for compliance thereby ensuring the effective policing of the regulation and level playing for the global shipping community.
Dr. David Atkinson is Principal Chemist at Parker Kittiwake.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.