Study shows the impacts of new IMO regulations on transportation costs
The Ministry of Transport and Communications of Finland has issued a study entitled “Sulphur content in ships bunker fuel in 2015” regarding the impacts of the new IMO regulations on transportation costs.
On 10 October 2008 the Marine Environment Protection Committee (MEPC) of the International Maritime Organisation (IMO) unanimously adopted the revised Annex VI to MARPOL 73/78 (International Convention for the Prevention of Pollution from Ships), which places restrictions on nitrogen and sulphur oxides emissions from ship traffic. Lowering the sulphur content in fuels will also be a way to reduce emissions of particulate matter from shipping. The new Annex enters into force on 1 July 2010. The sulphur content of fuel will fall in the special areas (SECA = Sulphur Emission Control Area), which are the Baltic Sea, the North Sea and the English Channel, from 1.5% to 1% from 1 July 2010, and to 0.1% from 1 January 2015. Globally, the highest permitted sulphur content of fuel will fall, as from 1 January 2012, from 4.5% to 3.5%, and to 0.5% from 1 January 2020. The use of sulphur scrubbers will still be allowed, so that the fuel grades currently in use on vessels fitted with them can also be used
For a long time now, large car and passenger ferries on the Baltic Sea have been using heavy fuel oil with a sulphur content of no more than 0.5%. However, there is not enough of it as things are now and the situation may not change in the future either – to meet the needs of all marine traffic in the Baltic, North Sea and English Channel. A report by the IMO states that approximately 0.5% of the fuel currently used by global maritime traffic is heavy fuel oil with a sulphur content of less than 0.5%. According to the report, the use of heavy fuel oil grades will mainly need to be abandoned when the sulphur content limit for fuel is less than 1%, necessitating a switch to light fuel grades. Accordingly, it is also difficult to estimate the price that heavy fuel oil with a maximum sulphur content of 0.5% might be in the future.
A switch to fuel with a maximum sulphur content of 0.1% will in practice mean that vessels will have to use gas oil (MGO) as fuel, which is a lot more expensive than heavy fuel oils, owing to the way it is manufactured. It has proven difficult to estimate the availability of low sulphur fuels. Estimates received suggest that the problems will not be owing to the demands on SECA areas, at least not yet, but to the fact that when light fuels start to be used worldwide, the oil industry will have to increase its refining capacity considerably to meet the rise in demand for light fuel grades.
Distribution of costs by vessel type on average for vessels operating between Finland and other countries and sailing under the Finnish or a foreign flag.
(Click on the image for a larger view)
One should always exercise caution when predicting future prices for fuels, as there are so many variables involved. Besides, price trends are not so much based on facts as all the various expectations and beliefs concerning the future. Uncertainty and the massive fluctuations in fuel prices we have witnessed have led us in this report to give fuel prices that are not based on any precise value but a probable range of variation on the basis of estimates by the member companies of the Finnish Oil and Gas Federation.
One should always exercise caution when predicting future prices for fuels, as there are so many variables involved. Besides, price trends are not so much based on facts as all the various expectations and beliefs concerning the future. Uncertainty and the massive fluctuations in fuel prices we have witnessed have led us in this report to give fuel prices that are not based on any precise value but a probable range of variation on the basis of estimates by the member companies of the Finnish Oil and Gas Federation.
The total fuel consumption for ships bound for Finland has been estimated on the basis of two scenarios for consumption in 2007, where maximum consumption is 2.6 million tonnes (scenario 1) and minimum consumption is 1.8 million tonnes (scenario 2). The estimate is that if vessels bound for Finland were to switch from heavy to light fuel – in this case gas oil with a maximum sulphur content of 0.1% – the following additional costs would be incurred, given the differential in prices for fuel grades:
- at 111 euros per tonne the maximum would be 273 million euros and the minimum 190 million euros
- at 480 euros per tonne the maximum would be 1.182 million euros and the minimum 823 million euros
The calculations do not take account of the savings in fuel costs through the possible use of sulphur scrubbers, adapted to deal with the conditions in the Baltic Sea.
For more information please read the study “Sulphur content in ships bunker fuel in 2015“ issued by the Ministry of Transport and Communications of Finland.
