How do you solve a problem like MGO?

Emissions control has been big news recently with President Barack Obama announcing his administrations’ climate change and emission control policy last week – the first US President to do so. Indeed, it is a subject that has never been far away from thoughts of those involved in the shipping world. For participants in the Specialised Products market there are regulation changes on the horizon which may well cause some upheaval, chiefly amongst owners. For some time now an emission control area (ECA) has been functioning in the Baltic and North Sea whereby all vessels trading in and entering the area must burn bunkers with a maximum of 1% sulphur content. The US, and most recently Canada, have followed suit with the same measure albeit for vessels entering or trading within 200 nautical miles of the coast line. Whilst there were concerns for owners to begin with, on the whole, they have adapted well to this regulation. This is all well and good for now but as of January 1st 2015 the IMO will introduce a new 0.1% sulphur limit on both the US, Canada, Baltic and North Sea ECA’s simultaneously. The standard marine fuel which would meet these requirements is more commonly known as marine gasoil (MGO) and owners currently burn it in port through auxiliary engines. Not a problem then some may say? Not strictly true. There are a few issues that arise here from both a cost and technical perspective, with different ways of getting around them. Owners may, if they deem it cost effective, install exhaust scrubbers on their vessels allowing them to burn regular bunkers and use the scrubber to bring the emissions down to 0.1%. However, for many this is a rather large investment and despite many scrubbing technologies out on the market, it is still an expensive business to retrofit in-service vessels and many systems are unproven. Not to mention dry dock costs, scrubber availability and loss of income. Owners who commission newbuildings however might deem this to be a more cost effective approach. The only other option for in-service vessels would be to convert their engines so that they can handle the new fuel type or to LNG, a very expensive business. The other problem is the cost of MGO itself. There is a rather high price differential between LSFO and MGO, as much as $300 per tonne at current levels. This differential may be exacerbated when the new regulation comes into force when expected supply problems come to the fore.

For now, it appears there is a reluctance amongst many at the moment to adapt to the upcoming changes. However, this doesn’t detract from the major shift this represents and will affect charterers and owners alike across the board – an increase in voyage costs in the short term is almost certain. The technical and operational problems that arise from burning fuels with significantly different characteristics is problematic to say the least so there is an unquantifiable cost here as well. Over the next 18 months there will be much testing and discussion over this topic, which there should be but deciding on a unified course of action sooner rather than later will help set many minds at ease!

SP blog 2 July

This entry was posted in Chemicals, Clarksons, Commodities, Shipbroking, Shipping, Uncategorized. Bookmark the permalink.

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