{"id":4667,"date":"2019-12-23T20:10:22","date_gmt":"2019-12-23T20:10:22","guid":{"rendered":"http:\/\/euromenaenergy.com\/?p=4667"},"modified":"2019-12-23T20:10:22","modified_gmt":"2019-12-23T20:10:22","slug":"a-major-shipping-fuel-change-is-coming-and-so-are-higher-prices","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=4667","title":{"rendered":"A major shipping fuel change is coming, and so are higher prices"},"content":{"rendered":"
\n

Bloomberg\/ London<\/p>\n<\/div>\n

A defining moment in the history of the oil-refining and shipping industries is at hand.
\nIn fewer than two weeks, thousands of ships the world over will be forced to use fuel containing less sulphur in order to comply with global rules set out by the International Maritime Organization. Those who don\u2019t could face penalties and even imprisonment. Ports are deploying drones to \u2013 literally \u2013 sniff out wrongdoers. The regulations are having a profound effect on oil refineries and the cost of seaborne trade looks set to rise.<\/p>\n

What\u2019s the big deal?
\nFor decades, shipping has been the oil market\u2019s dumping ground for a pollutant blamed on aggravating human health conditions including asthma and causing acid rain. That\u2019s because refineries have struggled to eradicate it when turning crude into fuels. Even so, when the regulations were mandated back in October 2016, they came as a shock to many observers who had expected a later start date. While a panic about getting ready has subsided, there\u2019s clearly still work to do \u2013 as a slump in the price of non-compliant fuel demonstrates.
\n\u201cIMO 2020 is the most fundamental and dramatic product specification change the oil industry has experienced, with an impact on both shipping and refining,\u201d said Torbjorn Tornqvist, the chief executive officer of Gunvor Group, one of the world\u2019s largest oil and gas traders. \u201cIt has the potential to change every product and crude differential out there.\u201d
\nThe cost of shipping a twenty-foot box-load of goods from Latin America to Europe could rise by $26, according to IHS Markit, a consultancy. A week-long ship cruise could go up by $130 per cabin, the firm estimates. Add 5 cents onto a crate of bananas.
\nIt\u2019s still too early to say exactly who the biggest winners and losers will be among refineries because there are thousands of variables that shape their profit – more than 600 grades of crude, and many ways of setting up the plants.<\/p>\n

Safety concerns
\nThe shipping industry has been consistent in flagging a safety concern about the rules. As yet, there\u2019s no single global standard. The new fuel must simply have certain properties – including sulphur and other important metrics \u2013 that don\u2019t exceed specified levels.
\nBut the lack of a single global product means refineries can make a compliant fuel in different ways. It\u2019s thought that some will essentially be low-sulphur crudes that are carefully mixed with other oils, for example. Another way of making the product is to mix the residues from crude that have gone through what\u2019s known as vacuum processing in a refinery with other material. These different approaches mean the ships\u2019 chief engineers will need to be vigilant so as to avoid mixing incompatible fuels.
\nProof of the greater risks have emerged in northwest Europe, where supplies of the new fuel have been found to contain too much sediment. If such fuel found its way onto ships, it could potentially clog filters and lead to engine problems.
\n\u201cWe still have concerns over safety and availability of compliant fuels,\u201d said Guy Platten, secretary general of the International Chamber of Shipping, an umbrella group for maritime trade associations. \u201cThis is a pressing issue.\u201d<\/p>\n

Trade impact
\nThere are already signs that the changeover is having an impact on maritime logistics.
\nIn Singapore, the world\u2019s biggest refuelling centre, vessels have had to wait longer than normal to collect bunker fuel. Likewise, the government of Gibraltar said that a lack of refuelling barges has emerged.
\n\u201cWhen you consider that 90% of global trade is carried out by seas, it is very important,\u201d said Robert Hvide Macleod, the chief executive officer for the management unit of Frontline Ltd, one of the world\u2019s biggest supertanker owners. \u201cIt will surely be disruptive and create some supply chain bottlenecks in the early goings and logistics constraints when it comes to sourcing marine fuels.\u201d
\nIn broad terms, fuel represents shipping\u2019s single biggest expense and the new types are trading at several hundred dollars per tonne more than the old variety. So the cost of seaborne trade could creep up if owners manage to pass on the higher prices.
\n\u201cI think we will see its impact on global trade in terms of waiting days and increased costs,\u201d said Sadan Kaptanoglu, president of BIMCO, the world\u2019s largest shipping association. \u201cThere could even be chaos in extreme situations, where fuel shortages could delay cargo deliveries and non-compliance by ships ending in port state punishments and court cases.\u201d<\/p>\n

Compliance complications
\nIt\u2019s important to remember that oil refineries and shipping companies have spent billions getting ready.
\nSome ship owners installed scrubbers, units that can cost several million dollars each and allow carriers to remove sulphur from fuel as it\u2019s burnt. This enables them to keep using today\u2019s cheaper product. Likewise, refineries have invested in technology to convert sulphur-rich crude into higher-quality fuels.
\nFor compliant companies, cheating by others is a problem. Yet there could be non-compliance, at least initially. Industry estimates are that something like 10%-15% of the fleet won\u2019t comply with the rules at the start.
\nNot every country in the world signed up to the regulations, including some large coastal states with significant refining capacity. Even among those that did, not all look likely to start with strict enforcement. There\u2019s also a disparity between what penalties will be imposed from one nation to the next.
\nSouth Africa, which sits on a shipping lane connecting eastern and western hemispheres, doesn\u2019t yet have the domestic laws in place to punish non-compliant vessels.<\/p>\n

Bottom line
\nNevertheless, these rules should work.
\nFull enforcement may happen more slowly than the IMO and some in the shipping and refining industries would like. There\u2019s a big financial incentive to cheat, and an opportunity to do so on selected trades.
\nBarring any obvious safety concerns though, the overriding view of analysts is that there should nonetheless be substantial compliance.
\nThat means less airborne pollution and be a positive for those companies that invested in conforming.
\n\u201cThere\u2019s almost certainly never been a simultaneous global specification change in the oil industry,\u201d said Spencer Welch, oil markets and downstream director at IHS Markit. \u201cFor the whole world to change specification of a product on the same day is almost unheard of.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Bloomberg\/ London A defining moment in the history of the oil-refining and shipping industries is at hand. In fewer than two weeks, thousands of ships the world over will be forced to…<\/p>\n","protected":false},"author":1,"featured_media":4672,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[46,48,57,68,76,77,82,86,87,90,96,99,103,107,109,111,113,137,139,146,148,160,174,183,184,201,202,209,222,230,232,233,244,246,249,256,262,263,267,277,279,280,285,288],"class_list":["post-4667","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-oil-gas","tag-aramco","tag-athens","tag-baroudi","tag-carbon","tag-climate","tag-climate-change","tag-co2","tag-cyprus","tag-decarbonising","tag-democracy","tag-doha","tag-eastmed","tag-egypt","tag-embargo","tag-emissions","tag-energy","tag-energy-peace","tag-gas","tag-gazprom","tag-greece","tag-greenenergy","tag-international-maritime-disputes","tag-lebanon","tag-maritime-boundaries-east-mediterranean","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-pollution","tag-poverty-alleviation","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-solar","tag-solar-power","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-turkey","tag-unclos","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/4667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4667"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/4667\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/4672"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}