A comprehensive listing of companies concerned with shipping, bunkers/supplies, freight forwarding, maritime and supporting industries.

News

Green marine fuel standard making some players uneasy

The Business Times by Tan Hwee Hwee
MARINE fuel players are largely not against going green but their chief concern is how to manage what is shaping up to be a costly transition for the shipping and refining sectors, two pillars of the world economy, going by the vantage point of an industry association representative.

Timothy Cosulich, the Asia chair for International Bunkering Industry Association (IBIA), tells The Business Times, he has no qualms throwing his support behind the International Maritime Organization's (IMO's) 2020 global sulphur cap.

"It's good corporate governance for the industry," says Mr Cosulich, a sixth-generation successor to Italian shipping group Fratelli Cosulich, in an interview ahead of SIBCON 2018, the largest marine fuel conference taking place here this week.

The IMO green shipping regulation that will cap sulphur content in marine fuel to just 0.5 per cent is premised on cutting the emission of harmful sulphur dioxide.

Clearly, it would not do the image of the industry any good to fight a regulation that is built on such moral high ground. Yet, it has taken IMO, the overarching maritime regulatory body, eight years until October 2016 to firm up the 2020 implementation date. And even two years on from having made the call, the maritime regulator had to reiterate its decision to stick to the 2020 deadline at an industry event last week.

Mr Cosulich acknowledges that many in the industry have been harbouring hopes that the IMO will postpone the implementation of the global sulphur cap. These players are not against the spirit of the regulation per se, but they are concerned about an imminent industry shake-up.

Energy and commodities price agency S&P Global Platts estimates that the 2020 global sulphur cap will result in a trillion-dollar disruption to the world economy, forcing consumers of some three million barrels per day of high-sulphur fuel oil to switch to low sulphur variants and distillates.

The fact is, the high sulphur fuel at the bottom of the barrel of the typical refining process has long been the defacto choice for shipping companies. That has not deterred shipping from continuing to serve the world economy as the most efficient means of transportation, cost- and emission-wise.

Even so, Mr Cosulich says the industry still has room to improve when it comes to cutting ship emissions. The million-dollar question however, is how to mitigate the cost and pain of the low-sulphur transition.

For now, the journey ahead is clouded by uncertainty, not least due to a lack of clarity on the types of fuel that will be made available by 2020.

Fratelli Cosulich, which has exposure to both shipping and marine fuel supply businesses, has conducted its own independent research on fuel availability. Mr Cosulich says the research findings validate the IMO claim on low sulphur fuel availability by 2020. "Oil majors are planning to have a wide range of marine fuel products available for their clients."

Still, that does not dispel concerns in the industry over whether the fuel specifications sought by shipping companies will eventually be offered across all ports of call.

And while refineries have been developing new sulphur cap-compliant fuels, these may not be compatible with one another, presenting challenges for blending of fuels at ports worldwide.

It boils down to matching demand with supply, but there are just too many variables at play - types of fuel available from refineries, ship engine configurations, shipping itineraries, to name a few.

To comply with the 2020 cap, ships can switch to low-sulphur fuel types, including marine gas oil, liquefied natural gas and low sulphur fuel oil that fit their engine specifications. Or they can continue to burn heavy fuel oil, but with scrubbers installed on board to remove pollutants from the exhaust gas emitted.

With international shipping being such a highly fragmented sector, no one can really call the shots on the future marine fuel mix.

The only thing for sure is the cost of international shipping will go up. It's inevitable that ship owner-operators fighting to stay afloat in a prolonged industry-wide downturn, would look to pass some costs to consumers. But that is shaping up to be an uphill task, with the scale tipping in favour of "buyers" over "sellers" as most shipping sub-sectors are still battling overcapacity.

Mr Cosulich believes additional shipping costs may eventually be shared across the global supply chain. This view takes into account how international shipping makes up 80 per cent of the world's trade flows based on an IMO estimate. The inconvenient truth is everyone has to play a part in going green - the man in the street may well end up paying more for every item he consumes from the 2020s.