The following article is written by Unni Einemo of the International Bunker Industry Association (IBIA):
The world of bunkers is heading for rapid and fundamental changes and not just because of the 0.50% sulphur cap in 2020. While IMO and stakeholders are working hard to deal with this unprecedented global fuel specification change, discussions have moved on to just how soon we should phase out the use of fossil fuels altogether.
By the time you read this, the key outcomes of the 72nd session of the Marine Environment Protection Committee will have been well publicised, but not necessarily well understood. Misunderstandings have been rife with regards to what the approval of a carriage ban of fuel oil exceeding 0.50% sulphur actually means. Has it changed anything? And what does it mean if the IMO agrees to ban the use and carriage of heavy fuel oil (HFO) as bunkers in the Arctic? And how on earth can we cut CO2 emissions from global shipping by at least 50% by 2050 to keep the world safe from catastrophic climate change?
Carriage ban set for adoption
As expected, MEPC 72 agreed to amendments to MARPOL Annex VI to prohibit the carriage of bunkers above 0.50% sulphur in bunker tanks on ships. It is set for adoption at MEPC 73, which should allow it to take effect on 1 March, 2020. The intention of this regulatory change is clear and simple, but has lent itself to a surprising amount of misinterpretation.
The only thing that has actually changed is that the text of MARPOL Annex VI now prohibits not just the use of bunkers above 0.50% sulphur content, but also makes it an offence for ships to carry it in their fuel tanks. Nothing else is new. From January 1, 2020, only ships with an approved “equivalent arrangement” such as scrubbers are allowed to use high sulphur fuel oil (HSFO) and from March 1, 2020 they will also be the only ships allowed to keep HSFO in their bunker tanks.
Strangely, some think the carriage ban means all ships, even those without scrubbers, can carry on buying and using HSFO until 1 March 2020. The reality, however, is that while all ships can still legally carry it until 1 March 2020, seeing as they are not allowed to use it after January 1, why would they?
Another common misunderstanding is that the carriage ban could prevent ships with scrubbers from carrying HSFO, or for ships to carry it as cargo. Neither is true, but it’s easy to see how semantics could give rise to such beliefs. Part of the problem is that MARPOL Annex VI is split into separate parts which are interlinked, but the links between them aren’t explicitly spelled out. The one we know best is Regulation 14, which, following the amendment to include a carriage ban, should read as follows from 1 March 2020: “The sulphur content of fuel oil used or carried for use on board a ship shall not exceed 0.50% m/m.”
Other parts of MARPOL Annex VI deal with the exemptions from this general requirement. Scrubbers are allowed under Regulation 4 on equivalent means of compliance. Any ship with a scrubber will have this reflected its International Air Pollution Prevention (IAPP) Certificate. Moreover, it is possible for a ship to be given an exemption to conduct trials for sulphur emission reduction and control technology research under regulation 3.2 of MARPOL Annex VI.
There could also easily be semantic misunderstandings about what fuel oil actually means. In the global commodity market “fuel oil” is typically understood to refer to residual fuel oil from refineries, which is also the main ingredient in most bunker fuel today. In IMO-speak, however, it is defined in Regulation 2.9 of MARPOL Annex VI as follows: “Fuel Oil means any fuel delivered to and intended for combustion purposes for propulsion or operation on board a ship, including distillate and residual fuels.”
Hence, when IMO regulations talk about fuel oil, it is only talking about fuel intended for combustion purposes, or bunkers. This does not include fuel oil carried as cargo. However, at MEPC 72, IBIA co-sponsored a document with IPIECA to ensure the regulatory text amendment would not unintentionally prevent bunker barges from carrying HSFO for delivery to ships with scrubbers. Originally, the text proposed for approval read: “The sulphur content of any fuel oil used or carried for use on board ships shall not exceed 0.50% m/m.” IPIECA and IBIA pointed out that this could be read as not allowing bunker barges to carry high sulphur bunker products as this would in fact be “fuel oil for use on ships”. Our proposal received strong support as the need for a clear, unambiguous text was recognised, and the text eventually agreed specifies “fuel oil used or carried for use on board a ship,” which should prevent the interpretation from including bunkers carried as cargo.
So, if the carriage ban changes nothing regarding what ships should be doing to comply with the 0.50% sulphur limit, why bother? The purpose is to enable more effective enforcement of the 2020 sulphur cap and hence reduce the risk that operators will be tempted to cheat and gain a competitive advantage. It means port State authorities only need to prove carriage of non-compliant bunkers, whereas the current regulatory text means they would have to prove that it has been used in their jurisdiction in order for them to be able to sanction the ship.
Unprecedented fuel spec change
Global marine fuel test data provided to the IMO’s sulphur monitoring programme are reported MEPC annually. They hint at the magnitude of the change that will need to happen in the global bunker supply chain in 2020. Test data for 2017 showed that only 1.61% of the residual fuels tested in 2017 were below 0.50%, while a further 3.25% of the samples tested in the 0.50% to 1.00% sulphur range. This suggests that supply of residual fuel meeting the upcoming 0.50% sulphur limit without significant blending is very limited. By contrast, prior to the global limit falling from 4.5% to 3.50% sulphur, only 13% of all residual fuels in the IMO sulphur monitoring programme tested above the new limit versus close to 98% at present.
There’s no such issue with marine distillates, where 95.02% of the tested fuel was below 0.10% sulphur content, meaning the vast majority of distillate fuels supplied at present meets the emission control area (ECA) sulphur limit.
However, the IMO sulphur monitoring report also shows that the volume of residual fuels tested was 10 times that of distillate fuels, so come 2020, the vast majority of fuels supplied today will have to be replaced with fuels that are much lower in sulphur. That will be quite an undertaking in the supply chain and we will likely see many unfamiliar blends as the market strives to find the most cost-effective fuel solutions.
MEPC 72 also heard that the International Organization for Standardization (ISO) has been given the green light to develop a Publicly Available Specification (PAS) in response to a request from the IMO to provide an ISO standard that can better reflect the quality of fuels with no more than 0.50% sulphur. Work is underway on PAS 23263: “Guidelines for fuel suppliers and users regarding marine fuel quality considering the implementation of maximum 0.50%S in 2020” and looks like it will be ready by the end 2019. The intention of PAS 23263 is to provide detailed guidance to fuel suppliers and users on the type of fuel blends that are anticipated to dominate the global bunker market in 2020.
Arctic HFO ban on the cards
MEPC 72 agreed that work will begin to develop a ban on the use and carriage of heavy fuel oil (HFO) for combustion purposes by ships in Arctic waters, but first it needs to define what is meant by ‘HFO’. Fuel blends complying with the upcoming 0.50% sulphur limit may contain both distillate and HFO blend components, so it will be critical to have a clear definition.
A group of countries put forward a proposal to ban HFO use and carriage as fuel by all ships to which MARPOL applies when operating in Arctic waters no later than 2021, with a five-year delay in implementation for ships that have fuel tank protections in place. The ban would not apply to HFO carried as cargo.
The proposal was resisted by some countries which were ready to identify measures to reduce and mitigate the risk of HFO fuel spills, but not a carriage ban. There was also discussion on the potential impact of such a ban on maritime trade, in particular on Arctic communities and economies. MEPC 72 agreed that this should be assessed before adopting a future ban.
MEPC 72 agreed on the scope of work for the Sub-committee on Pollution Prevention and Response (PPR), which meets for its 6th session in February 2019. PPR 6 has been tasked to develop a definition of HFO; prepare a set of guidelines on mitigation measures to reduce risks of use and carriage of heavy fuel oil as fuel by ships in Arctic waters; and on the basis of an assessment of the impacts, develop a ban on HFO for use and carriage as fuel by ships in Arctic waters, on an appropriate timescale.
It has been widely reported that the use and carriage of HFO is already banned in the Antarctic (including as cargo). This is not strictly speaking correct: the Antarctic ban in Regulation 43 of MARPOL Annex I applies to heavy grade oil (HGO), which is defined as follows:
.1 crude oils having a density at 15°C higher than 900 kg/m3 ;
.2 oils, other than crude oils, having a density at 15°C higher than 900 kg/m3 or a kinematic viscosity at 50°C higher than 180 mm2/s; or
.3 bitumen, tar and their emulsions
PPR 6 has been instructed to take Regulation 43 of MARPOL Annex I into account when developing a definition of HFO. The key would be .2 in Regulation 43 (above).
The current HGO ban in the Antarctic means all the marine fuel grades meeting current ISO 8217 marine distillate (DM) specifications would be allowed for carriage and use. Residual grades (RM), although several of them have a kinematic viscosity at 50°C below 180 cSt, all have a maximum density limit in excess of 900 kg/m3, which would not be allowed.
With extensive blending of various components anticipated to meet the 0.50% sulphur limit in 2020, it is anticipated that many blends classified as RM products will have viscosity below 180 cSt. Density may also be lower than we see for most RM grades today, though it seems unlikely that fuels designated as RM would be below the 900 kg/m3 at 15°C threshold.
If the IMO agrees to use the current HGO definition for the Antarctic ban to define what constitutes ‘HFO’, density would become the key differentiator between fuels that can be used or carried for use in the Polar regions and those that would be banned. Ships equipped with scrubbers would still be able to transit Polar waters, but only if they empty out HFO from all their fuel tanks first, rendering scrubbers rather obsolete in Polar regions.
GHG: The beginning of the end
The heat was on for MEPC 72 to adopt an initial IMO strategy on the reduction of GHG emissions from ships. The world was watching. There were almost daily demonstrations outside and a warning emblazoned across the embankment of the River Thames facing the building: “IMO Don’t Sink Paris”.
MEPC 72 was preceded by an intersessional working group (WG) to develop a draft text to be finalised by the Committee. It was clear that consensus would not come easy, but after two weeks of tough negotiations, during which many countries set out incompatible positions threatening to undermine the chances of arriving at an agreement, a compromise text was adopted. This sends a strong signal about the IMO’s commitment to phasing out greenhouse gas emissions from international shipping as soon as possible, consistent with the Paris Agreement temperature goals.
The agreed overall “level of ambition” to reduce the sector’s total GHG emissions by at least 50% by 2050 compared to 2008 levels was the most hotly contested point. It was viewed as far too weak for many, while a large number of countries objected to defining a figure at this stage as they felt it is premature and not based on evidence.
Addressing MEPC 72 toward the end of the week, IMO Secretary-General Kitack Lim encouraged member states to adopt the compromise text although, as he conceded, it may not be completely satisfactory to everyone. Failing to adopt the Initial IMO GHG Strategy was “not an option,” he stressed, reminding the Committee that the Initial Strategy is a key starting point; it is not the final outcome.
IMO has agreed to present a revised GHG Strategy in 2023, when it has data from its mandatory fuel consumption data collection and a new IMO GHG Study to better define shipping’s actual contribution to global GHG emissions.
The Initial IMO GHG Strategy includes a vision statement: “IMO remains committed to reducing GHG emissions from international shipping and, as a matter of urgency, aims to phase them out as soon as possible in this century.” It sets out objectives highlighting IMO’s role in addressing GHG emissions and identifying what actions to take, while supporting the continued development of global trade and maritime transport services. The controversial “levels of ambition” include not just the overall “at least 50%” sector reduction goal by 2050, but also a stated aim to reduce CO2 emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008.
The strategy also contains a list of “candidate short-, mid- and long term further measures with possible timelines and their impact on states” to be further developed. These start off with technical and operational energy efficiency measures, before transitioning to low-carbon and eventually zero-carbon fuels.
The purpose is to make sure international shipping contributes its fair share in the global effort to keep climate change in check by limiting temperature rises to “well below” 2°C above pre-industrial levels and to pursue efforts to keep them to no more than 1.5°C. If this fails, the world as we know it could change dramatically and for some of the Pacific island states represented at the IMO, due to rising sea levels, it would literally mean the end.
To achieve this aim, however, the use of fossil fuels would have to be phased out completely and replaced with carbon neutral energy sources. Just what the fuels of the future might be is not yet clear. We are a long way away as current supply of carbon-neutral options and technologies fall well short of global energy demand.
The lyrics of 1987 hit from the rock band R.E.M. concludes: “It’s the end of the world as we know it, and I feel fine.” The task ahead of us, then, is to find the energy solutions that will make us feel fine. That means the end of the world as we know it for oil-based bunkers.
Published: 3 September, 2018
Sukumar Verma, Managing Director at Informa Connect Singapore, explains how the world’s largest bunkering event will be virtually carried out between 6 to 8 October 2020.
David John Kidd amassed losses of over SGD 1 million to Lukoil Asia Pacific Pte Ltd through multiple irregular trades with Transocean Oil over a four-month period in 2016.
Helmsman LLC lawyers discuss pausing of LC payment, what it means for parties buying ships from companies of a group affected by fraud allegations, and trafficking in spent bills of lading.
Beluga Asia has entered into a Memorandum of Agreement with Sun Marine Corporation to acquire bunker tanker M.T. MA Veronica for USD 2.45 million.
Listing of Brightoil’s shares on the Stock Exchange was cancelled on 16 March 2020, according to a written Judgement of Russell Coleman, a Judge of the Court of First Instance.
‘To this end, the Bank has shown there are grounds for suspecting the CIA Contract may be a sham / fake contract and/or was not performed,’ said CMB’s submission to the Singapore court.