Much uncertainty surrounding Sulphur Cap

The uncertainty surrounding the impending introduction of the Sulphur Cap in 2020 was highlighted when North P&I held a briefing on ‘2020 Vision – Get Ready for the Sulphur Cap’in London yesterday (11th July).

Colin Gillespie, Director (Loss Prevention) at North, told how many owners and charterers were watching and waiting and still had not made up their minds about how they will comply with the 0.5% sulphur regulation.

“The one word that really encapsulates the 2020 Sulphur Cap is uncertainty,” he said. “There is no certainty about which compliance option you should take. From a commercial and an operational point of view, there is a lot of uncertainty in the market and that means that people in the business – owners and charterers – haven’t made their minds up about what they are going to do.

“A North, what we are trying to help our members with is to provide them with first class information so they can use that information and take better decisions.

He said there would obviously be a change with the technical side and also contractual issues.

“We see potential for lots of disputes running across 2020 because the bunkering situation now will be completely transformed in terms of the landscape after 2020.

He said owners and charterers will want to try and avoid disputes, and they will need to think about clauses in contracts going forward.

“I think perhaps the one thing that is holding people back, is that prediction is very difficult.”

Alvin Forster, Deputy Director (Loss Prevention) added: “We don’t know what the right choice is. It appears the vast majority will burn distillates.”

He said there were pros and cons to every choice. For example, with burning cleaner fuels there would be less maintenance required but the downside is that the fuel costs a lot of money and there is also concern about availability in different parts of the world.

He said the option of hybrids and blends could lead to a risk of incompatibility and some might also fall outside of ISO 1827.

Scrubbers do incur an initial cost but the payback is expected to be very short. However,  scrubbers are perceived to be the least green of all the options.

Tiejha Smyth (Deputy Director) FD&D added that it was believed there would be enough very low sulphur oil (VLSO) to supply demand, though it might not be available everywhere in the world.

“All these issues will mean an increase of cost to somebody,” she said.

Indeed, the cost of the 2020 requirements to the container shipping industry could be as much as $30 billion according to the International Transport Forum at the Organisation for Economic Co-operation and Development (OECD).

She added that the high fuel cost could lead to charter party disputes during the cross over period and charter parties relating to bunkers will need to be reviewed. Terminology would also have to change in bunker clauses, she said, stressing that owners and charterers needed to think ahead about this.

“This issue needs to be tackled now, not just because of technical reasons but for the charter party issues as well,” she said.

Ms Smyth said there was no single clause that could deal with all of the 2020 issues. She added that North P&I was helping its members in several ways such as staging seminars and webinars and it has also published a new loss prevention guide ‘Marine Fuels: Preventing Claims and Disputes’ and a special edition of its Signals newsletter on the Sulphur Cap.

Ian Crutchley, of Veritas Petroleum Services, gave an overview of the new fuels entering the market and potential challenges, particularly contamination. “There will be operational challenges in the early days post 2020,” he said.

The briefing concluded with thoughts from Jack Jordan, of S&P Global Platts who gave some analysis of the bunker market and forecasts. He said the biggest concern for owners thinking about VLSO was its compatibility.  He said latest figures from DNV GL show a ‘dramatic rise’ in the number of ships which have ordered or installed scrubbers – 817 by the end of May 2018. However, he said despite all the positive news about scrubbers, they were still a relatively niche option and believed they would only become more expensive as their popularity rises.

Pictured, left to right, are Ian Crutchley, Veritas Petroleum Services); Alvin Forster, Deputy Director (Loss Prevention), North; Tiejha Smyth, Deputy Director (FD&D), North; and Jack Jordan, S&P Global Platts.