Shipowners brace for S Korea's new emissions rules amid pandemic pain

Singapore — Shipowners are starting to gear up for South Korea's stricter environmental emissions rules despite having no time to draw breath after transitioning to IMO 2020 and grappling with the coronavirus pandemic that has caused an unprecedented slowdown in global export trade.

South Korea will require the use of bunker fuel with maximum 0.1% sulfur content while berthing and anchoring from September 1 at some ports and areas such as Incheon, Yeosu, Busan and Ulsan.

A more significant change will come in 2022, when it will become mandatory to use fuel with maximum 0.1% sulfur content in South Korea's emission control areas, not just for berthing or anchoring, an industry source said, adding this would result in a significant jump in demand for low sulfur marine gasoil.

"There is a big impact on us - from September, we have to use more [quantity of] expensive oil," a shipowner source in South Korea said.

South Korea is a mid-size player in the Asian bunker fuel market, with marine fuels sales in the range of 7 million-9 million mt/year.

Such restrictions have already been implemented in a handful of other Asian countries, including China, but South Korea's regulations loom as the global coronavirus pandemic creates logistical bottlenecks in supply chains and lockdowns restrict movements of ships and people.

"Many countries are in lockdown and in Southeast Asia, where we operate, many factories are closed. Even though South Korea can export, sending cargoes out to other countries is difficult," a second shipowner source said, adding that blank sailings - cancelled bookings - are currently the norm.

NOT ALL NEGATIVE

However, South Korea's changes do not pose insurmountable challenges, market sources said.

"It's not a problem for us [to meet the 0.1% cap]. We have already signed contracts with suppliers and traders to secure the supply," a third shipowner source said.

Low marine fuel prices on the back of the collapse in crude oil prices have cushioned the blow to shipowners of the reduction in demand due to lockdowns.

South Korea delivered Marine Fuel 0.5%S averaged $245.39/mt over April 1-29, sharply lower than $490.20/mt in the first quarter, S&P Global Platts data showed. Similarly, 0.1% MGO for delivery at Busan/Ulsan averaged $283.32/mt over April 1-29, almost halving from $535.05/mt in Q1, Platts data showed.

Fuel switchovers have also become common as shipowners have garnered sufficient experience from meeting the IMO 2020 global sulfur mandate, which will make the operational challenges of meeting South Korea's tightened rules less cumbersome, market sources said

"The IMO 2020 was a much bigger challenge but shipowners have adapted fairly well.. .and most shipowners are already preparing for the new rule, so compliance will not likely be a problem," another industry source said.

South Korean refiners are also well placed to meet the demand for cleaner fuels - to the extent of having to reduce runs due to the demand destruction caused by the COVID-19 pandemic, sources said.

The country's No. 2 refiner GS Caltex, which operates four CDUs with a combined capacity of 800,000 b/d, has brought forward scheduled CDU maintenance while Hyundai Oilbank, which runs two CDUs with a combined capacity of 520,000 b/d and a 170,000 b/d condensate splitter, has lowered its run rate to 90%, Platts reported earlier.

S-Oil Corp., which runs three CDUs with a combined capacity of 250,000 b/d and a 89,000 b/d condensate fractionation unit, said it currently has no plans to reduce run rates, but may do so if demand weakens further, Platts reported at the time.