Not all black & white
11th February 2015 17:21 GMT

The new 0.10% emission control area (ECA) sulphur limit is now in force. This much we know. It’s there in black and white in MARPOL Annex VI and has been written into national legislation in most of the countries that have waters falling within an ECA.

After years of everyone trying to guess what this would mean for marine fuel suppliers and buyers, there have been some positive surprises.

With most ships expected to use low sulphur marine distillates to comply, global demand for this fuel could increase by around 50 million metric tonnes (mt) in 2015, equivalent to approximately 3% of total global middle-distillate consumption. There were fears that this would lead to huge pressure on availability of compliant fuels, and that marine gas oil (MGO) prices relative to heavy fuel oil (HFO) would rise significantly. But as the date for the new sulphur limit approached, and so far in 2015, it looks like supply has kept up with demand, and thanks to falling oil prices, compliance has not been as big a financial burden as owners had feared.

We know why the cost of ECA compliance has not been as bad as predicted. Tumbling oil prices - which have more than halved since June 2014 - have brought down prices for all marine fuel grades. As a result, the price differential between ECA compliant fuel compared to HFO measured in dollars per metric tonne (pmt) has shrunk significantly. As of January 2015, MGO was actually cheaper than regular HFO was just half a year prior to the regulatory change. The differential is wider, however, in percentage terms. While the MGO premium over HFO in June 2014 typically ranged from 50-60%, that premium rose to 80-90% in January. Current low prices may encourage owners to comply, but the price gap between HFO and MGO is still wide enough that some may be tempted to cheat.

Availability of compliant fuels has been supported by a variety of factors. Thanks to regulations requiring ships calling at any European Union (EU) port to burn fuels with maximum 0.10% sulphur while at berth, in force since the start of 2010, international ship operators have increasingly turned to MGO. Suppliers in the EU have since offered mainly distillate fuels that meet the 0.10% sulphur limit, and supply elsewhere has also been growing in response to demand. In the US, marine distillates typically have sulphur content below 0.05%, probably because it comes from the same supply pool as heating oil, where the domestic sulphur limit is 500 ppm (0.05%).

But there would still be a huge jump in demand if all the low sulphur fuel oil (LSFO) previously used for ECA compliance was replaced by MGO. Rotterdam, for example, would see MGO demand increase by 400-500%. In December 2014, when many owners were already buying MGO in preparation for the lower ECA limit, Rotterdam saw MGO sales increase by 150-177% compared to normal monthly volumes. This gives an indication that compliance could be high, but only if January MGO sales are even higher.

Which brings us onto the things we don’t know yet. Just how high will compliance levels be? Will supply continue to meet demand? If low oil and bunker prices encourage compliance, will the temptation to cheat increase when prices go up again (and when will that happen)? Will the number of inspections be ramped up to the extent required by the EU, and just how much will the EU, US and Canada step up control and enforcement efforts? And just how will those found in breach of sulphur limits be penalised?

At present, the US has a statutory maximum penalty of $25,000 per violation, per day, but this will be adjusted, according to the US Environmental Protection Agency (EPA). It has said penalties will "remove the economic benefit of non-compliance" and "reflect the gravity of the violation". Several north European countries have signalled similar intentions. We still don’t know what this means.
Would a ship using fuel found to be fractionally above the limit face the same penalties as one that is still using HFO? It would seem unfair that operators that have endeavoured to comply, but failed, were to face the same penalties as those that clearly disregarded the ECA limit.

For those that operate globally and need to switch fuel only for the ECA part of their journey, error margins are extremely thin. Achieving full compliance could take around 70 hours if the ship is switching from a 'typical' HFO with 2.70% sulphur if the new fuel has exactly 0.10% sulphur. The time to achieve compliance would fall to around 11 hours if the fuel used to comply has a sulphur content of 0.09%.

At these sorts of levels, it would take very little for the calculations to go wrong, as it is quite possible, due to normal variations in sulphur test results, that a fuel supposed to be 0.09% sulphur is actually closer to 0.10% sulphur. Likewise, variations in sulphur test results means a 0.10% sulphur fuel may show a 0.09% or a 0.11% sulphur test result.

The Netherlands has said it will take test result variations into account and accept sulphur test results up to 0.12% as compliant with the new ECA limit. Other countries may follow the stricter guidelines found in Appendix VI to MARPOL Annex VI, which make 0.10% sulphur an absolute limit for ECA operations. Whether inspectors follow the strictest sulphur verification guidelines or not, one can only hope that their views are not all black and white when it comes to dishing out penalties.

*This is an extended version of a guest feature written for Voyager, the ExxonMobil Marine Fuels and Lubricants newsletter.

Unni Einemo,
11th February 2015 17:21 GMT

Comments on this Blog
Heinz Otto - Windships
12th February 2015
hi unni,
money has always earned with (also Sailing) ships, and fines for ECA-limit violations must be good because EVERY human time to time cheating a bit.
When do the shipowner notice them that their spending on oil fuel plus any penalties are higher than the long distances across the oceans to cope with the wind and then drive in the ECA region only with MGO / MDO. This might give some savings in some ports already, regarding the harbor charge.
And this could be an eco bonus for the shipowner with their cargo sailers, to win new their customers get.
Would this be a false hope to achieve good results in Paris with CPO-21?
agoetfme agoetfme
3rd September 2016
agoetfme agoetfme
3rd September 2016

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