Environmental regulations and legislation
Although inland markets, particularly in the developed economies, have been subject to tight restrictions on air pollutant emissions for many years, similar legislation on a global scale for the marine sector is relatively new. The first regulations from the International Maritime Organization (IMO) to control air pollution from shipping did not come into effect until 2005, and these were not particularly demanding in terms of fuel quality. That is now changing as IMO phases in tighter limts on bunker fuel sulfur content and on nitrogen oxides (NOx) emissions, and introduces new Emission Control Areas. Some changes such as the global fuel sulfur cap of 0.50% intended for 2020 represent an unprecedented step-change for the industry. The full impact will depend on how extensively ship owners adopt abatement technologies such as exhaust gas scrubbing, and if use of alternative fuels such as Liquefied Natural Gas (LNG) becomes common. At one extreme, if abatement technologies are widely adopted, the regulations will cause little disruption. At the other extreme, if ship owners are reluctant to adopt measures such as exhaust gas scrubbing, there would be huge disruption to the bunker market. Under the latter scenario, the use of distillate fuel by deep-sea shipping could become the norm. Several hundred million tonnes per year of high-sulfur fuel oil would be displaced from the bunker market, and fuel suppliers would have to find alternative acceptable outlets for it.
In addition to IMO regulations, various regional controls on emissions from shipping have been introduced, including regulations from the European Union and from California's Air Resources Board. Although these regulations are broadly aligned with IMO's, they introduce some additional requirements and/or shorter timelines.
Regulators’ attention is increasingly focused on greenhouse gas emissions. IMO is actively developing measures to curb shipping’s emissions of carbon dioxide. Mandatory fuel efficiency standards for new ships are being phased in from January 2013, and all ships will be required to prepare energy efficieny management plans. Discussions are continuing on introducing economic penalties and incentives (called "market-based measures" by IMO) to improve fuel efficiency.
Consideration of the forthcoming marine legislation and its likely consequences should be an essential part of any future planning by ship owners and operators, fuel suppliers, bunker fuel purchasers, and marine service providers. Knock-on effects from the bunker market to inland fuel oil markets are likely, so fuel oil users in non-marine sectors such as power generation would be well advised to monitor how the bunker market is responding to the evolving marine legislation. Liddy Associates can keep you aware of how global and regional marine legislation is evolving, and can advise on how the legislation is likely to affect fuel oil availability, supply/demand balances and quality in the markets of relevance to you.