By 2020, the global shipping fleet will be required to reduce greenhouse gas emissions by 50% and switch to low-sulphur fuels, a move that is expected to radically improve air quality. The recent decision pushed through by the International Maritime Organisation, the United Nation’s leading shipping agency, is one of the biggest revolutions in maritime history. Its effects will be felt the world over, by refineries and ship owners as well as trading hubs and ordinary consumers at the gas pump.
This is good news for the environment. According to a recent report by the National Resources Defense Council, with ships allowed to burn fuel with sulphur levels that are up to 3,500 times higher than permitted in on-road diesel, one container ship cruising along the coast of China emits as much diesel pollution as half a million new Chinese trucks in a single day. The major overhaul shows that the industry is finally making the transition from thick, sulphur-rich bunker fuel to cleaner, more environmentally friendly maritime fuel.
But in order to make sure that these changes have a lasting impact that goes beyond the shipping industry we will need to embrace the full potential of marine fuels and liquefied natural gas (LNG) and create a new culture of transparency, although within the International Maritime Organisation (IMO) itself.
The IMO ruling to push the sulphur cap for bunker fuel down to 0.5% will affect 70,000 ships and will be a game changer for marine fuel. More broadly, the wider commodities industry, from coal to oil to sugar, is likely to face a price hike. No sector will be immune to these changes as the shipping industry carries almost 90 per cent of world trade. Airlines and travellers worldwide are also likely to be affected due to a knock-on effect creating higher fuel prices.
So where do we go from here? There is no silver bullet to the post-2020 scenario. Alternatives include using sulphur-rich fuel oils alongside so-called scrubber systems, exhaust gas cleaning systems, a technology which also has many drawbacks. The cost of investing in scrubbers can exceed US$10 million per ship. The low margins of the sector mean that ship owners are understandably reluctant to make these investments.
That is why the shipping sector must create a general consensus for post-2020 bunkering, one that will help cut costs and improve energy supply and security. Low sulphur fuel oil and liquefied natural gas are the way forward. They are credible solutions for energy stakeholders seeking an economic and environmentally sustainable option. LNG bunkering contains almost no sulphur, produces low greenhouse gas emissions and has a proven technological track-record.
Looking to the future, it is important that the shipping sector takes steps to harness the full potential of LNG as well as offset the potential consequences of the new regulations pushed through by the IMO. To do this, we first need to address the likely challenge of millions of barrels of high sulphur bunker fuel being displaced as a result of the new limits. This is because the marine market has traditionally been a major outlet for the refining industry.
Second, we will need to do the maths and work out the logistics of sourcing high volumes of LNG for bunkering in line with domestic and industrial needs. This will involve addressing the question of supply, mindful of the fact that in the short-term low-sulphur fuels will dominate until large scale consumption of LNG takes hold across the bunker sector.
Finally, a new culture of transparency has to take root in the shipping industry, encompassing all major players – including the IMO. A report published this month by Transparency International, the global corruption watchdog, highlighted several accountability shortcomings that are weighing down the Organisaton. These must be addressed if the IMO is to deliver on its ambitious and honourable goals.
The IMO’s ground-breaking changes are essentially a force for good. And they are no doubt the first of many steps aimed at making the shipping sector less of a menace to the environment. This is a unique opportunity for energy stakeholders, big and small, to stay ahead of the curve and rethink how we do business.