It is not certain if and how the refining industry can actually achieve making the large changes in its products and markets to meet the International Maritime Organization’s 2020 deadline to reduce sulphur in marine fuel to 0.5%.
The IMO’s change to allowable sulphur in marine fuels is so dramatic and there is so little lead time that it is difficult to see how the majority of ships could be ready to comply by 2020, which is only 16 months away as of late-August.
It seems likely the IMO may be forced to provide ship owners with some form of relief in regard to the timing for compliance. or provide incentives to comply.
The IMO has announced that from January 1, 2020 the limit for sulphur in fuel oil used on board ships operating outside designated emission control areas (ECAs) will be reduced to 0.50% by weight from 3.50%. The new regulations will apply to more than 121,000 ships plying international waters worldwide, according to the IMO.
The main type of “bunker” fuel currently used by ships is high-sulphur heavy fuel oil (HFO) which is a residue of crude oil distillation. Bunker HFO contains sulphur which, following combustion in the engine, ends up in ship emissions. Sulphur oxides (SOx) are known to be harmful to human health, causing respiratory symptoms and lung disease. In the atmosphere, SOx can lead to acid rain, which can harm crops, forests and aquatic species, and contributes to the acidification of the oceans.
Limiting SOx emissions from ships will improve air quality and protects the environment.
Emission control areas
Within currently designated ECAs (the Baltic Sea area; the North Sea area; the North American area covering designated coastal areas of the United States and Canada; and the United States Caribbean Sea area around Puerto Rico and the United States Virgin Islands), ships must continue to comply with burning fuel limited to 0.10% sulphur.
This is currently being met by blends of middle distillate oils and/by diesel fuel.
Grades of “bunker” fuels
Middle Distillate Oil (MDO)
- 10 ppm sulphur and under (also called ultra-low-sulphur diesel, ULSD);
- greater than 10 ppm to 30 ppm sulphur (also called ULSD);
- greater than 30 ppm to 500 ppm sulphur (called low-sulphur diesel); and
- greater than 500 -1,000 ppm sulphur (called high-sulphur diesel and MGO).
[Note: 1,000 ppm is 0.10%, 0.5% is 5,000 ppm]
Heavy Fuel Oil (HFO)
- less than 0.5 % sulphur;
- greater than 0.5 % to 1% sulphur; and
- greater than 1% to 3.5% sulphur.
- a blend of the above grades which meet the IMO’s 0.50% (5,000 ppm) or 0.10% (1,000 ppm) sulphur limits;
- Shell expects that high-sulphur HFO will be replaced by MGO or high sulfur diesel.
Contrary to some reports, oilsands crude, partially upgraded oilsands crude, and synthetic crude are ideal feedstocks to produce low-sulphur marine fuels because one barrel of such crudes produces significantly more MDO and HFO than one barrel of light sweet crude.
Processes to remove the sulphur in oilsands crude or partially upgraded oilsands crude (synthetic crude is already low-sulphur) would need to be installed at the oilsands or at the refinery. That's not cheap, but the 135-year-old industry-standard Claus process provided much of, for example, the 78,000,000 tonnes of sulfur produced worldwide in 2010, as a by-product from refineries and other hydrocarbon processing plants.
Meeting the IMO’s new limits on sulphur in marine fuels
There are three ways ship owners can meet the new IMO sulphur regulations:
- Conversion to LNG requires new engines, fuel systems, fuel storage on-board, access to fueling facilities, and special crew training but reduces sulphur dioxides [SOx] and GHG emissions;
- Installing an exhaust gas cleaning system (EGCS), called a scrubber, adds operational and maintenance complexity and costs but allows continued use of cheap, high-sulphur marine fuels with little or no change in engines, fuel systems, fuel storage, or GHG emissions but reduces SOx emissions. Ship stability, space, safe sludge handling and disposal are issues to be solved for EGCSs
- Conversion to low-sulphur MDOs or blends may require some minor engine modifications but little or no change to fuel systems, fuel storage, or to GHG emissions but reduces SOx emissions.
Conversion to LNG is the most expensive retrofit and is probably best suited for new ships.
Installing EGCSs could serve as a stop-gap because it is possible that there will be insufficient supply of low-sulphur marine fuel for all ships when the IMO regulations take effect in 2020 and there will almost certainly be increased cost for low-sulphur MDOs and blends.
However, the IMO predicted in a 2016 study that only about 3,800 ships would have installed EGCSs by January 1, 2020 provided that a decision was taken in or before 2017.
Conversion to low-sulphur MDOs or blends results in higher fuel costs but this is the quickest, least capital-expensive, and most likely retrofit assuming enough low-sulphur marine fuel is available.
The higher cost of low-sulphur fuel will be passed on by shippers to their cargoes’ markets.
Availability of low-sulphur marine fuel
The 2016 study "Assessment of fuel oil availability" commissioned by the IMO concluded that the refining sector has the capability to supply sufficient quantities of marine fuels with a sulphur content of 0.50% or less and with a sulphur content of 0.10% or less to meet demand for these products, while also meeting demand for non-marine fuels.
Shell’s 2017 report “IMO 2020: What’s Next?” forecasted that in total three million bbls/d of high-sulphur HFO bunkers will need to switch to 0.5%S fuel through blending with MGO.
It is not certain if and how the refining industry can actually achieve making such large changes in their products and markets to meet the IMO’s 2020 deadline.
The IMO’s change to allowable sulphur in marine fuels is so dramatic and there is so little lead time that it is difficult to see how the majority of ships could be ready to comply by 2020.
It seems likely the IMO may be forced to provide ship owners with some form of relief in regard to the timing for compliance, or provide incentives to comply.