What to expect from changes in fuel in maritime transport

  • 28/01/2020
  • 9 minutes

Fuel use in maritime transport is undergoing an adaptation process that will have its ground zero by 2020. The planned changes, in turn, are justified by the global effort to reduce greenhouse gas emissions.

Thus, it is up to the professionals who work in this trade to adjust their operations as soon as possible, considering that there is little time for the beginning of the new year.

To bring more information about this new phase to come, we had the participation of Márcio Castro, Wilson Sons Rebocadores operations division director. We also had Renato Graça Couto, Hansa Mayer Global’s Chartering and Project Division.

What are the new requirements for fuel in maritime transport?

According to the Ministry of the Environment, sulfur dioxide (SO2) is one of the most harmful gases originating from human activities. It results from burning fossil fuels and, in addition to helping to aggravate the greenhouse effect, it causes severe respiratory problems.

Therefore, an effort is needed to mitigate or neutralize the emission of this substance in atmospheric air. According to Márcio Castro, this is the purpose of the International Maritime Organization (IMO), that is, to reduce the concentration of this material in fuel in maritime transport.

According to the expert, the agency states that “fuels used by smaller ships and vessels may only contain 0.5% sulfur in their composition from January 1, 2020. This is the recomendation of IMO, the UN agency that deals with safety issues in the maritime industry and the reduction of marine and atmospheric pollution.”

Castro adds that the regulation had already been published in 2016. That is, since then, companies that operate in the international and fuel trade have been adapting until the obligation is to be instituted.

Currently, the agency allows the use of fuels containing up to 3.5% sulfur in its composition. With this reduction, it is expected that there will be a significant reduction in greenhouse gas emissions, thus contributing to the achievement of UN climate goals.

What are the benefits of this change?

Changes in specifications for fuel production in maritime transport have the immediate benefit of reducing the environmental impact of navigation. However, according to Renato Graça Couto, there may be some long-term gain in operating costs. As the engines will be burning a better quality fuel, this could reduce the maintenance costs of the vessels.

Renato adds that “this change process has already happened with road diesel. Due to the environmental issue, the maritime industry also had to adapt. From now on, shipowners will also need to adhere to the use of cleaner fuels.”

Therefore, the new specification is expected to be effective in helping to meet the 2030 UN projections. For the United Nations, the use of low-impact technologies now can help remove 33 gigatons of CO2 from the atmosphere over the next 11 years.

In addition, the new fuel to be used may generate new revenues for Petrobrás. Before, the Brazilian multinational only supplied the input with up to 3.5% sulfur content to the domestic market, but has already notified that its bunker marine fuel will be within the standards by October. By the way, under the new rules, oil extracted from the pre-salt will be even more valued, since its sulfur levels are already within the new limits.

The expectation is so high that the current board of the state-owned company believes that this modification should represent the beginning of a new golden age for the company. As a result, there are already plans to resume distribution and sales in Singapore, the world’s largest consumer of High Sulfur Fuel Oil (HSFO).

What are the likely difficulties?

Either way, the effort in favor of the environment should take its toll. Márcio Castro and Renato Graça agree on this, as the new Low Sulfur Fuel Oil (LSFO) will be more expensive.

It is also considered that the sudden entry of LSFO in the market from 2020 on will cause an estimated demand of 4 million barrels of this input per day. Therefore, it is certain that fuel prices will be inflated, with repercussions for the entire global supply chain.

Also worth mentioning is an interview that Eddie Gauci, of British Petroleum, gave to Thomson Reuters. For the executive, the investments needed to adapt the refineries to the new reality have reached US$ 1 billion and the adaptive process continues. Therefore, it is estimated that, by early 2020, only one third of the demand for LSFO may be met.

How to adapt to the new standards?

Given the expected shortage of the new fuel and inflated prices, at least at the beginning of operations, some alternatives should be considered. One of them, as Márcio Castro points out, is “to use systems that clean the combustion gases, known as scrubbers, which also reduce atmospheric pollution.”

An additional measure, for experts, is the conversion of vessel engines to use Liquefied Natural Gas (LNG) as fuel. According to Renato “new ship designs should also opt for this configuration, which is less polluting.”

All this new context should cause international fluctuations in freight/surcharge values. As a consequence, shipowners will try to pass on operating costs to cover the extra expenses as a result of LSFO entry into force.

There is also a panorama of uncertainty about bunker surcharges to be applied by shipowners in the future. That is, until the market is consolidated, the fastest solution to save fuel costs is to adapt the engines of the vessels.

Márcio Castro confirms this prediction, “the immediate challenge is in relation to the price charged for marine fuels with lower sulfur content, considerably higher. Shipowners opting for the gas cleaning system, or LNG, will need to make a major investment in fleet conversion. In all cases, there is an expectation of an increase in the cost of international sea freight.”

Renato Graça concludes “the new fuel in maritime transport will increase the operating cost. As such, the trend is to have an increase in freight costs, at least early in the implementation of the new rules.”

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