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Shipping

LSFO set to be default bunker fuel choice as IMO 2020 rule nears: Bimco exec

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LSFO set to be default bunker fuel choice as IMO 2020 rule nears: Bimco exec

Singapore — Low sulfur fuel oil will likely be the default marine fuel option formany shipowners in 2020, particularly the smaller ones, should theydecide to adopt a wait-and-see stance ahead of the International MaritimeOrganization's 0.5% global sulfur cap rule, a senior Bimco executive saidlast week.

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Bimco is the world's largest international shipping association, witharound 2,100 members in over 120 countries. Its members control more thanhalf of the global shipping capacity.

Under IMO's mandate, global sulfur emission limits for marine fuels wouldbe cut to 0.5% in 2020, from the current 3.5%. Ship operators accordinglywill have to switch to cleaner, more expensive fuel or to alternativefuels such as LNG, or invest in exhaust gas cleaning systems also knownas scrubbers, to comply with the new limits.

"The big question is how do you prepare well for this rule [IMO 2020global sulfur cap]? The entire industry is banking on refineries todeliver compliant fuel," Bimco's chief shipping analyst Peter Sand saidon the sidelines of the Asia Pacific Maritime, or APM, event inSingapore.

Options to comply with the rule include marine gasoil, blended fuels,high sulfur fuel oil with scrubbers and alternatives such as LNG.However, confusion reigns as the industry grapples with the magnitude ofthe change and the possibility of additional costs.

Uptake of scrubbers has been very limited so far, in part due to the hugeupfront capital expenditure.

"Even if some bunker suppliers were willing to finance shipowners toinstall scrubbers, we're not going to see that many ships with it asowners will have to part with their flexibility and get tied down to onlyone provider."

LNG also comes with its own limitations, with the most significant onebeing the massive infrastructure spending -- a requirement unlikely to befully met by 2020.

As a result, LSFO will be the default option for many, Sand added. "Even though there is no standard for LSFO, you still cannot get it fromjust one supplier, and it comes with compatibility issues including therisk of cat-fines. Many of the problems can however be overcome with astandard specification for LSFO," he said.

"We are working with the ISO on various aspects," he said. Ultimately, it all comes down to the price, Sand said. "Right now we see LSFO futures are being traded only at a discount of[about] $30/mt to MGO and that's basically why you tend to see also thatLSFO is the winner right now due to price. However, in all fairness, youdo not get that much of a discount from MGO ... it would be nice if LSFOwere priced much closer to HSFO," Sand said.

IMPLEMENTATION NOT ENOUGH While implementation of the rule is the first step to tackle sulfuremissions in shipping, equally important is its effective enforcement,particularly in the high seas.

"We see a need to make sure this regulation is effective so that theindustry has a level playing field to play by," Sand said.

In this direction, BIMCO supports IMO's proposal for a carriage ban onnon-compliant fuels.

IMO's sub-committee on pollution prevention and response met in Februaryin London, where it recommended a plan to ban the carriage ofnon-compliant marine fuel in bunker tanks, with vessels fitted withscrubbers exempted from the rule.

In April, the proposal will be provisionally approved or rejected atIMO's Marine Environment Protection Committee, or MEPC, meeting. Ifsuccessful, the measure could be adopted in October for implementation inMarch 2020.

"The mood is positive so far but it has to be re-affirmed according tothe rules of the book that IMO play by," Sand said.

--Surabhi Sahu, surabhi.sahu@spglobal.com

--Eric Yep, eric.yep@spglobal.com

--Sameer Mohindru, sameer.mohindru@spglobal.com

--Edited by Irene Tang, newsdesk@spglobal.com