International Maritime Organization (IMO) has published new regulations that have inspired APICORP Energy Research to write about regulations and its impact on MENA. There is much to be said about the varied impact that these regulations have had on MENA, with GCC for consequences and regulations that will come to effect in 2020.
IMO are a specialized agency in the United Nations and have introduced a new set of rules in 2016 which are aimed at reducing the cap on the Sulphur content in marine fuel. From the start of 2020, ship-owners will have to adhere to these new regulations that call for 0.5% cap on the amount of Sulphur that is present in marine fuel as opposed to the 3.5% Sulphur that is present today, which in turn was enforced back in 2012. Shippers will find this to be a major impact on them and the consumers of HSFO (high Sulphur fuel oil), so will the refineries, which produce huge quantities of HSFO.
Ship-owners now have the following options before them:
• To continue using non-compliant fuel oil and installing scrubbers that work towards cleaning the exhaust fumes including the Sulphur content, LNG or methanol
• Or, to use fuels that are compliant, for example, Low Sulphur Fuel Oil (LSFO) and marine gas oil. There is still ambiguity about which of these options will be the most cost-effective, which is standing in the way of ship-owners to make a strong decision, with regards to these fuels.
Currently, burning gas fuel is available only in Europe. LNG bunkering is also at a nascent stage and has not found worldwide acceptance. Additionally, a lack of infrastructure has restricted LNG from becoming more popular among ship-owners.
LNG-based ships are still following standard and shorter routes. This is one of the main reasons why ships today are looking to switch to LSFO and must factor in the cost of fuel. Supply restriction in the long and short term create further ambiguity around the availability of bunkering ports in the world.
Although the global market today is able to produce high quantities of fuel, it is still a question mark as to the machinery of ships that are designed to run on high viscosity that can switch to low viscosity. Scrubbers, on the other hand, are not a long-term solution and do not guarantee the changes in the future and other specifications. Scrubbers are also not a cost-effective solution: they have a huge upfront cost of around $4M per vessel.
They require regular maintenance to remove any salt-water contamination that it may have, which can create difficulties in navigation and create further additional costs.
The way forward is the reduction in demand for HSFO as per IMO regulations that will increase the overall demand for LSFO. There will be further reliance on LSFO and diesel for marines. In the downstream sector, more demand for this will be created, leaving simple refineries at a greater risk. MENA will be a tremendous growth since it is a large producer of this consumer oil and will be driven by significant investments in complex refineries.
References: https://www.pipelineoilandgasnews.com/interviewsfeatures/features/2018/september/varied-impact-on-mena-from-imo-2020/
POST A COMMENT
