Page 4 - Al-Rashed Newsletter Nov19

SHIPPING WORLD
EFFECTS OF LOW SULPHUR FUEL

SWITCH – 2020

The global shipping industry is about to undergo one of the biggest changes in its
recent history with concerns lingering about just how safe the shift is going to be.

Starting in January 2020, vessels the world over will have to drastically reduce
sulphur content in their fuel to comply with rules set out by the International
Maritime Organization in London. The rules, drawn up by the U.N. International
Maritime Organization (IMO), will ban ships using fuel with a sulphur content
higher than 0.5 percent compared to 3.5 percent now, unless a vessel has
equipment to clean up its sulphur emissions. Any vessels failing to comply will
face fines, could find their insurance stops being valid and might be declared
“unseaworthy” which would bar them from sailing.

To be ready in time, ships have already started using up their last on-board
supplies of high-sulphur oil in order to replace them with the newer varieties. The
ships take between 30 to 45 days to clear the tanks, and fuel systems of the
HSFO and inject LSFO/MGO. Shipowners can install kit called a “scrubber” that
strips out sulphur emissions and allowing them to use the dirtier fuel oil. Some
ships already have them. But the equipment alone can cost $1 million to $6
million, according to manufacturer Wartsila, putting it out of reach of many
operators. By 2020, about 2,000 ships could have scrubbers, according to
Wartsila. There are chances that many vessels may try to dodge the new rules,
unable to afford the cost of scrubbers and reluctant to pay the premium for cleaner
fuel.

As the crude oil grade vary from country to country, there is also a possibility for a
higher demand for sweet crude as refineries may prefer to buy and process crude
that contains less sulphur, a shift that could change demand for different oil
grades and lead to greater oil market volatility.

With the switch over to low sulphur fuel oil, the vessel operators will be imposing a
surcharge to cover the increase in cost.

Energy firms and shippers may face a squeeze on margins. But, ultimately, extra
costs are likely to fall on consumers of everything from household appliances to
gasoline that are shipped around the world as roughly 90 percent of world trade is
by sea.

Spartan George
Source : gcaptain.com
Manager- NVOCC/Feeder