Indonesian-flagged vessels operating without scrubbers will be allowed to burn high-sulphur fuel oil (HSFO) in the country's territorial waters next year, contravening the International Maritime Organisation (IMO) rules on sulphur content in marine fuels.
The decision, announced by Indonesia's transport ministry this week, marks the first time an IMO member has openly said it will not abide by the organisation's sulphur cap. The new IMO rules limit global sulphur content in marine fuels to 0.5pc from 1 January 2020, down from the current 3.5pc.
The exemption will not apply to Indonesian-flagged vessels on international voyages, or to foreign-flagged vessels in Indonesian waters.
The government cited cost and availability issues as the main reasons for its decision. Indonesia is made up of about 18,000 islands and relies heavily on marine transportation.
It is unclear when Indonesia will meet the IMO requirements. "As soon as possible, gradual adjustments will be made so that we can fully comply with the limitation of 0.5pc sulphur fuels," the transport ministry said.
It insisted that Indonesia will follow the IMO rules once the shipping sector has had time to adjust and state-owned oil firm Pertamina is able to supply sufficient 0.5pc sulphur fuels. But "national interest must be prioritised", the ministry said.
Fuel oil availability
Ample stocks and production of HSFO are also factors in the decision to allow domestic shippers to continue to burn HSFO, the transport ministry said. Data on Indonesia's domestic fuel oil production and demand are unreliable, but the government noted that the 348,000 b/d Cilacap refinery produces around 1mn bl/month (30,000 b/d) of maximum 3.5pc sulphur HSFO. This will continue to be used for shipping, industrial and power generation needs, it said.
Cilacap can export at least three 200,000 bl cargoes of 180cst HSFO a month — equivalent to around 20,000 b/d or two thirds of its output — although levels vary. Exports have dropped off but have not totally stopped, with Pertamina recently offering 4pc sulphur 180cst cargoes for July and August loading.
Cilacap is Indonesia's only significant producer of HSFO. The country's fuel oil production is weighted towards low-sulphur grades because of its reliance on sweet crudes as refinery feedstocks. The 260,000 b/d Balikpapan, 133,000 b/d Plaju and 125,000 b/d Balongan refineries are regular exporters of low-sulphur residuals such as LSFO, low-sulphur waxy residue, vacuum residue and decant oil. The government's move to allow the continued burning of HSFO as a marine fuel could ensure these supplies maintain access to what could be an increasingly lucrative regional LSFO market as the IMO rules take effect. Pertamina also regularly uses the LSFO in its own refining system.
Pertamina will supply up to 6,500 b/d of 180cst marine fuel oil at the major ports of Tanjung Priok and Balikpapan, while 380cst demand will be met through imports, the transport ministry said. It has told Pertamina to supply 0.5pc sulphur fuels.
Freight impact minimal
The impact of the Indonesian decision on the freight market will be relatively limited. Vessels that operate outside the country — with many choosing to bunker in the regional hub of Singapore — will have to carry IMO-compliant fuels anyway, and are unlikely to convert tanks back to carrying HSFO when in Indonesian waters. And while vessels equipped with scrubbers could have the option of turning off the equipment when sailing in Indonesian waters, given the enforcement challenges in the huge country, only a fraction of the global fleet is likely to have scrubbers installed by 2020.
