Captain’s Corner- Who Gets Fried First?

Which came first, the chicken or the egg?

The philosophical debate spans the decades.

There is a relevant discussion going on in our industry that echoes this age-old dilemma, but it is centered on the upcoming IMO new low sulphur fuel regulations. Basically—which needs to come first—implementation or the preparation? Half the people I speak to are in the wait-and-see mode and secretly hoping for a delay of the implementation of the regulations. The other half is working on complying with what they deem will be the regulations by:(1) installing scrubbers or (2) getting a plan together in an environment where one doesn’t really know the availability worldwide of the fuel. Either way, you could get fried. And a key question is: how will the enforcement be carried out as it could affect as many as 70,000 ships?

As discussed in our Port Bureau News, last month, the perplexities began in 2008 when the IMO introduced the sulphur cap deadline to reduce the airborne emissions from ships to a 0.5 sulphur oxide limit to lessen their environmental impact. Although the January 1, 2020 deadline has been consistently upheld by the IMO, ship owners and operators face a plethora of uncertainties as they determine how to comply with the regulatory framework.

Over 90% of global trade is carried out by sea. This includes the world’s energy, raw materials and manufactured products. The core of the dilemma rests on supply and demand. On the shore side, neither fuel refiners nor exhaust scrubber manufacturers want to ramp up their unique inventories without orders safely on file. On the ship side, owners and operators won’t order until they know supplies and systems will ensure compliance. For example, an emission scrubbing system might look like a workable fix, but the retro fit of scrubbers is expensive ($5M+/ship) and must be approved by the ship’s Administration (the flag State). Added to that is the cost of waste disposal and the chance scrubbers could be vulnerable to more changes in IMO regulations. The shipper could be out millions of dollars and back at square one.

This would appear to make low sulphur fuels the answer, but they can be problematic. Currently low sulphur fuels are running $200/ton more than regular bunker fuels. When the implementation date of January 1, 2020 kicks in, supply and demand may drive that price delta higher. Will there be supplies available in lesser market locations like Africa? So now, you are running dual fuels, but does that bring additional compliance requirements such as proof that you are not gaming the system? The confusion seems to mount as we move forward, and ship owners are pushing for clarifications.

In June, the Coast Guard and the Environmental Protection Agency held a public workshop designed to help agencies prepare for the 2020 deadline. This workshop was a part of a larger process to prepare for the IMO’s “intersessional working group meeting” in July – and, this intersessional work is prep for an even larger IMO session in October. The layers of meetings reflect the layers of difficulties that surround implementation. Meantime, the goods need to keep moving!

What happens next is a great question, and one that we’ll be looking at during our October 11th Commerce Club.

CAPT Bill Diehl, USCG (Ret.), P.E.
GHPB President

  • Date August 14, 2018
  • Tags 2018 July/August