PARIS: Tens of thousands of cargo ships will have to use less polluting fuels in January, in a move that could raise bills for consumers.
The International Maritime Organization (IMO) decided in 2016 that sulfur levels in fuels for ships, currently 3.5 percent, would have to fall to 0.5 percent in 2020.
The idea is to reduce the emission of highly toxic sulfur dioxide — a health hazard responsible for acid rain — by the nearly 80,000 cargo ships which ply the seas.
The shipping industry is critical to the global economy but the pollution it generates is estimated to cause 400,000 premature deaths per year.
Shipowners have several options to meet the new regulations.
One is to continue with heavy fuel oil but install scrubbers that remove sulfur from the exhaust fumes. But these can be expensive, and some models dump the water used to clean the exhaust into the ocean.
A second option is for shipowners to convert their vessels to run on liquefied natural gas (LNG), which is less polluting, but few have chosen it as LNG fueling infrastructure doesn’t exist in all ports.
The easiest option for many is to switch to new fuels with low sulfur content or marine diesel oil.
Around 3.6 million barrels of oil per day (bpd) are used to produce the fuels used by the shipping industry. Around one-sixth of the total is expected to remain dedicated to production of high-sulfur content-heavy fuel oil for vessels equipped with scrubbers or those which do not immediately comply with the new regulations.
“That leaves about 3 millions bpd that needs to adjust to the 0.5 percent fuel regulation” said Chris Midgley, head of analytics at S&P Global Platts.
The International Energy Agency said recently that the oil products market is heading for its “largest ever transformation” as refiners “will need to adapt to a new demand landscape.”
The first impact on shipowners will likely be an increase in costs.
Fuels that meet the new regulations are more complex to produce and are “two times more expensive, but we could see an even larger increase with higher demand,” said Nelly Grassin of Armateurs de France.
Cargo firms may be tempted to raise their rates to ship goods, which could eventually lead to higher prices for consumers.
Both Brent and WTI, two benchmark grades of crude oil that are heavily traded on the markets, are “sweet” in industry parlance, meaning they have a low sulfur content.
But crude pumped from many other areas is “sour,” meaning it has more sulfur, including hydrogen sulphide is more costly to process.
“Brent could rise and test $70, maybe break through $70 at the end of the year,” said Midgley, compared to under $60 per barrel currently.
The new IMO fuel regulations “will have a knock-on impact on all consumers who are buying gasoline or diesel,” he added.
For Alan Gelder, a vice president at the energy research and consultancy group Wood Mackenzie, “the general public will be impacted by the IMO regulation in two major ways — the cost of flights and the retail prices of road diesel.”
Any increases in airfares are likely to be more gradual as airlines usually lock in prices for several months in advance.