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China's new emission control areas rule to have little impact on LSFO demand

Singapore — The expansion of emission control area or ECA rules to China's entire coastline from 2019 is expected to have little impact on low sulfur bunker fuel demand, given the limited area to which it applies and the ability of ships to switch to marine diesel to meet the new regulation, industry sources said this week.

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China's Ministry of Transport this month announced changes to the country's existing marine fuel regulations. The announcement includes the implementation of the 0.5% sulfur content limit to be applied to vessels sailing within 12 nautical miles of the coast, in addition to just berthing.

China's bunker fuel demand currently exceeds 650,000 b/d, and is mainly fuel oil and marine diesel, according to a Wood Mackenzie report. Nearly two-thirds of it is used in inland waterways and the remainder in the coastal areas, the report said.

Vessels can switch to 0.5% sulfur marine gasoil from high sulfur fuel oil when they are in restricted waters, and the consumption volume will be limited, China-based bunker traders said. So, the additional cost will be small, they added.

"As an alternative, the crew can stop the ship's engine and berth the vessel with the aid of tugboats," a source said.

Bunkering demand from domestic vessels will be harder hit relative to ocean-going ones, sources said.

"Ocean-going vessels usually come from overseas, and navigate in ECA for a short time, using less marine gasoil. Whereas domestic vessels will navigate in the ECA for a much longer time, and use much LSFO," a Shanghai-based bunker supplier said.

China's latest move to expand its ECA means that bunker fuel costs could rise but the differential won't be all that much, a shipowner said.

"The [2019] regulation applies to only 12 nautical miles to the sea. This is not much," another shipowner said.

China is also considering implementing other rules, including a tightening of the sulfur specification to cap it at 0.1% sulfur from 2020, and that too with a wider coverage of up to 200 nautical miles from the coast.

"There is a 0.1% sulfur limit which is pending, authorities should announce before the year end," a Zhoushan-based trader said.

Meanwhile, shipowners are also expecting little or no impact from the new ECA rule, given that they have adequate preparation time to comply with the limited scope of the change, shipping sources said.

China's new regulations kick off at a time when pollution from shipping, particularly sulfur emissions, has become a global concern.

Many of the country's initiatives to curb pollutants from shipping come as part of China's 'blue sky defence' action plan and ahead of the International Maritime Organization's global sulfur limit rule for marine fuels.

The IMO rule will cap sulfur in marine fuels at 0.5% worldwide from January 1, 2020, from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%. -- Surabhi Sahu, surabhi.sahu@spglobal.com

-- Oceana Zhou, oceana.zhou@spglobal.com

-- Su Ling Teo, su.ling.teo@spglobal.com

-- Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com