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Shipowners are counting the cost of new global sulphur emissions legislation

Shipowners are counting the cost of new global sulphur emissions legislation
In a little more than two years’ time, shipping will have to shift to low sulphur fuel and although many variables are still to be considered

Some certainties are gradually shaping up. In its latest weekly report, shipbroker Gibson said that “perhaps we are all getting a little tired of reading about various warnings about the implementation of the new global sulphur emissions legislation effective from the 1st January 2020. However, the issues associated with that date are not going to disappear anytime soon. Last month, an ExxonMobil survey highlighted an ongoing sense of confusion and a lack of preparedness, with 70% of respondents saying that they do not believe that the industry is ready for the deadline. As brokers, we are frequently asked for information on this topic; is there a future for fuel oil; what is going to be the financial cost of ….. etc. Will implementation be delayed? Will there be sufficient compliant fuel? The questions are endless, finding answers is a lot trickier. Up until recently, the general stance adopted by most owners has be to wait and see what others are doing. But implementation is fast approaching, and time is rapidly running out to ensure that your ship is ready for 2020”.

Gibson said that “speaking in Athens last week, Dr Edmond Hughes, IMO’s head of air pollution and energy efficiency (MEPC) stated that the global sulphur limits would enter into force “with no delay”. This is the stance that the IMO have adopted for some time now after some softening of recent legislation on some issues following external pressure. Dr Hughes went on to say that any breach of the legislation could result in the detention of a vessel and that a non-compliant ship could be considered “unseaworthy”, which could affect their charter party and also indemnity in the event of an insurance claim. Compliance, enforcement and monitoring will be the responsibility of both the flag and port states”.
According to the shipbroker, “another conference, coincidentally also held in Athens around the same time and attended by a large continency of Greek owners also focused on the emission regulations. The Greener Shipping Summit 2017 again raised concerns about the availability of compliant fuels, although refiners attending the conference appeared to be confident that they will be able to meet demand for compliant fuel. However, this industry change will result in a vast volume of HSFO being replaced by 0.5% sulphur fuel and cannot happen overnight. Jesper Arvidsson of MAN Diesel & Turbo talking about scrubbers stated that no engine modifications are usually needed, and if they are, they are minor. He went on to say the biggest problem for engines was the variation in fuel quality. Arvidsson also stated that scrubbers were a big investment and the uptake has been slow, although more financing solutions are being offered by the makers and fuel suppliers. Oil majors are also looking to timecharter tankers with scrubbers and are driving the move towards regulation compliance. A fact that was reinforced by a statement from BP earlier this week”.

The shipbroker noted that “the conclusion has to be that most vessels will have to switch to a fuel of maximum 0.5% sulphur content. The worry for the industry is what the premium will be over the fuel oil price in 2020. Anyone considering the scrubber option should be taking steps now to plan as competition for yard space could become critical the nearer we get to the deadline (effectively 24 months away). Mass adoption of LNG conversion as an alternative fuel is off the menu for several reasons. However, the only area that there is unanimous agreement is that the changeover is going to be costly for all interested parties”, Gibson concluded.
Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, “cracks, that started to show last week, widened in VLCC Owners’ defences as Charterers maintained an easy approach to a market awash with availability. Rates sunk into the low ws 60’s East with mid ws 20’s still the zone for Western runs. There will probably need to be further discounting before any serious fixing momentum ensues to give the market the opportunity of a turnaround. Suezmaxes became less active as the week wore on and rates to the West slipped to ws 37.5 with levels to the East clinging on to their previous ws 87.5 marks. Owners need more attention to cement their bottom lines. Aframaxes faced insipid enquiry through the week and rates crumbled to 80,000mt by ws 110 to Singapore with further downside on the near-term cards”, the shipbroker concluded.

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