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FEATURE: For the bunker industry, 100% sulfur compliance by 2020 is a distant dream

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FEATURE: For the bunker industry, 100% sulfur compliance by 2020 is a distant dream

Singapore — The world's bunker industry is making progress in inching toward meetingthe International Maritime Organization (IMO) global sulfur cap target by2020, but with less than three years to go, achieving the target in itsentirety still looks like a tough climb.

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Apart from the fundamentals -- availability of 0.5% sulfur compliantfuels or other suitable alternatives -- uncertainty about oil prices and thehuge costs involved will also be hurdles to achieving a radical change,sources said, adding that neither the refining industry nor the shippingsector are equipped to deal with the tectonic shifts.

This view also resonated at an industry conference in Fujairah last week,where over 30% of the respondents who participated in a live poll said therewould be some degree of non-compliance with the related emission control area(ECA) cap by 2020. Although, they were specifically responding to compliancein ECA, this might be indicative of how things might look like in non ECAs, ifone were to extend the sampling group.

"Of course, we have to take care of the environment, of course we have totake care of the next generation [but] of course, we have to be reasonable [tothe industry]," Gamal Fekry, the CEO of Red Sea Marine Management DMCC, saidat Fujcon 2017 last week.

"Everybody is waiting because there is no incentive in place to doanything right now [ahead of the 2020 global sulfur cap]. Banks are not goingto give money for scrubbers unless they know the repayment or payback time andfind the economics attractive, while LNG is for the future as infrastructureis insufficient and capital intensive. The majority [of customers] will behoping that refineries and trading companies can provide blended fuelsalthough the supply chain will not be able to adapt that quickly," accordingto Paul Nix, general manager of terminal operations at Gulf Petrochem.

When ECA zones were first introduced in Europe, some shipowners simplyopted to pay the fines and not comply with the sulfur limit there, as this wasstill cheaper than burning ECA compliant fuels, Nix said, adding that theindustry has been relying too heavily on a penalty-based system.

A carrot-based approach, which has incentives, may be better than using astick, with penalties, he said.

However, some felt that, as long as penalties around the world aresimilar and are high enough, the industry will be compelled to abide. "By 2020, we will have some sort of compliance; we'll know how regulationwill be enforced and how effective it is. If the industry has clarity, thensolutions will be found and it will work its way through it...but unless thereis a level playing field, everybody will wait and watch before adopting asolution," said Andrew Laven, manging director at Bomin Oil DMCC.

There are 88 signatories to Annex VI of the international MARPOLenvironmental convention, which aims to prevent air pollution from ships. Inaddition, according to the International Transport Workers' Federation, thereare 35 Open Registries, of which 13 are signatories to Annex VI and 22 arenot. As a result, over 90% of global trade now passes through ports in the 88signatory states.

Open Registries/Flags of Convenience account for about 70% of bunkerpurchases, Robin Meech, managing director at Marine & Energy Consulting andChairman of the International Bunker Industry Association (IBIA), said in ane-mail to S&P Global Platts Thursday, adding that this leaves significantscope for re-flagging, reducing compliance if adequate measures are not taken.

Furthermore, of the 88 signatories, so far only 28 states (26 in the EU,along with the US and Canada) have significantly enforced Annex VI, Meechsaid.

"This means 60 states require port state enforcement resources andtraining for officers," he said.

Measures to improve compliance could include making it illegal to leaveport with insufficient bunkers to reach the next designated port compliantly,he said. There is also a need to improve bunkering standards in many ports byintroducing unified standards, accurate measurement and survey systems, andmore training for seafarers and port officers, he said.

"For its part, IBIA is also seeking to smooth the transition post 2020,"he said, adding that the association has developed the IBIA Port Charter,which focuses on three essential principles to ensure that systems are inplace to enable quality bunkers to be delivered, measures are taken to ensurethat the correct quantity is delivered, and systems are transparent for allconcerned parties.

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

--Edited by James Leech, james.leech@spglobal.com