November 03, 2016

Marine Fuel Sulfur Cap at 0.50 wt% to Take Effect on Jan. 1, 2020

Stratas Advisors

This report is part of the following Sratas Advisors’ services:  Global Alternative Fuels,  Global Fuel Specifications,  Global LNG and  Global Refining & Products.

On Oct. 27, 2016, the International Maritime Organization (IMO) confirmed that the sulfur content of marine fuel will be capped at 0.50 wt% globally. The new standard is scheduled to go into effect on Jan. 1, 2020. The current limit is 3.50 wt%.

The 0.50 wt% cap has been written into IMO regulations since 2008. However, there is some ambiguity concerning the date. A clause in the 2008 regulations specified that the IMO must, by 2018, review whether there will be sufficient compliant fuel available in 2020. If not, the start date would be delayed to Jan. 1, 2025.

IMO’s Marine Environment Protection Committee (MEPC) has completed the fuel availability review well ahead of schedule. The review report was considered by the MEPC during its meeting in London in late October. The report concluded that the refinery sector will be able to meet the expected demand for low-sulfur marine fuels. On that basis, MEPC confirmed that the new limit will definitely take effect from Jan. 1, 2020.

The fuel sulfur limit applies to all ships worldwide, unless they use abatement technology such as exhaust-gas scrubbing to achieve equivalent (or lower) emissions of sulfur oxides. In IMO-designated Emission Control Areas (ECAs), the current tighter fuel sulfur limit of 0.10 wt% will continue to apply. ECAs are currently designated for the Baltic Sea, the North Sea/Channel, much of the U.S. and Canadian coastline, and a small area of the Caribbean.  

Stratas Advisors’ Views

The fuel availability review was led by Netherlands-based consultancy CE Delft, with contributions from Stratas Advisors and others (see Reports & Analysis, Oct. 22, 2015). Alongside the MEPC-commissioned report, a second report sponsored by industry organizations was submitted to MEPC.

Authored by U.S.-based consultancies EnSys and Navigistics, the second report reached a somewhat different conclusion to CE Delft’s: introducing the 0.50 wt% cap in 2020 would lead to severe strains on global oil markets for an extended period.

These differing views are a reflection of the difficulty and complexity of the issue. The amount of bunker fuel that will have to be switched from high-sulfur to low sulfur is estimated by CE Delft to be 233 million tons per year. Meeting that demand will be a major challenge for the refining and shipping industries. MEPC recognizes this, and has tasked its Pollution Prevention and Response sub-committee with developing an implementation plan to address issues within IMO’s remit.

Stratas Advisors will publish a follow up report for subscribers of the Global Fuel Specifications service in early 2017 on the impact of the new sulfur cap, looking at some of the issues in greater depth.

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