New ECA sulphur cap: implications for shipping

On 10th October 2008, under MARPOL Annex VI, the IMO adopted the policy that with effect from the beginning of this year the sulphur content of emissions allowed in the Emission Control Areas (ECAs), including: the Baltic Sea, North Sea and English Channel, plus the USA, most of Canada, the US Virgin Islands and Puerto Rico, would be reduced.

From 1st January 2015, every ship operating within the ECA areas must use higher quality fuels, the allowable emitted sulphur content decreasing from 1% to no more than 0.1%. Environmentalists and the international shipping community has in general supported this sound environmental improvement initiative.

Vessels will now be required to use either a distillate fuel, an altogether alternate fuel or continue to use existing fuels but with the installation of a scrubber or gas cleaning system that removes sulphur from the exhaust after combustion.

A number of international oil companies have moved to provide supplies of the regulated grades alongside their standard fuel products; for example Exxon now produces a compliant fuel known as HDME 50 which has similar properties to Heavy Fuel Oil (HFO) but importantly, complies with the 0.1% sulphur limits. Whilst this fuel is reportedly cheaper than Marine Gas Oil (MGO), it is currently only available in the Rotterdam area.

There is a significant concern about where most of these new bunker supplies will come from with speculation that in case of deficit, it is most likely that it will be sourced from Russia, the Middle East, India, South Korea and the US. Some shipping companies are implementing ECA regulation surcharges based on their evaluation of cost inflation to manage the cost of adhering to the environmental protection regulations.

For the most part, the reality of this recent regulatory change is that heavy fuel will have to be replaced with cleaner fuels such as marine diesel and marine gas oil with 0.1% sulphur content which are considerably more expensive.

So what is the impact on the shipping community?

Firstly, ships’ costs structures will change as increased bunker costs are unavoidable. The differential between high sulphur fuel oil and MGO as was reported by Gibson Shipbrokers (November 2014 – from their records based on Rotterdam prices) as “fluctuating between $253/tonne and $337/tonne since 2012, with the current difference at [around] $260/tonne”. There will inevitably also be additional costs associated with the requirement for additional bunkering to carry the necessary volumes of the different grades of bunkers.

Then there is the requirement for engine modifications (due mainly to difference in oil viscosity) and the considerable costs of these projects across shipping fleets.

As there are no means by which the sulphur content (of the fuel oil once loaded) can be altered on board (other than on board blending, for which there are currently no guidelines) it is necessary to ensure that the fuel oils loaded meet the required limits and that, in the case of the ECA compliant fuel oils, this compliance is not compromised by mixing with other, higher-sulphur fuel oils either in bunker tanks or in the transfer system. There are complications associated with dual storage (in order to cater for the storage of different grades of bunkers on board). In many cases there will likely be a requirement for a sub-division of tanks (further redesign and expense) and possibly the need for more frequent bunkering (again further costs associated).

The administrative burden of managing the operational changes associated with the introduction of the new sulphur limits will impact significantly. With such a strict restriction, the ship’s crew will need to ensure that they avoid loading compliant fuel oils into otherwise part filled storage, settling or service tanks, and be certain that in the course of transfer operations such fuel oils do not become mixed with other higher-sulphur content fuel oils, so that only the fuel oil actually used within the applicable limit is used within the ECA.

Prior to entry into the ECA, a full change-over to ECA compliant fuel oil will need to be implemented. There will be requirements for new on board written procedures as to how these routines will be undertaken (and guaranteed) as well as record keeping at each change-over to record the fuel oil quantities, the date, time and position of the ship when either completing the change-over prior to entry or commencing change-over after exit from such areas. These records will need to be entered in a logbook or as prescribed by the ship’s Flag State (under an additional administrative directive).

In sum, as an avid spectator of the shipping community, a previous sea-goer and as an environmentally conscious citizen, it is my opinion that the new IMO regulations on sulphur emissions are essential and timely but they are certainly not without complication. Patience, time and significant financial and management resource will be required, throughout the short and medium term, to accommodate their introduction. We should all be thankful that bunker prices are down by more than 25% based on the same period last year (on the back of constantly declining crude prices) which may go some way to offset the additional new expense.

Karen Jacques, Director Asia Pacific