IMO to impose sulphur cap by 2020

Global supply of low-sulphur marine fuels will be sufficient to meet a rise in demand by 2020

The International Maritime Organisation (IMO) has voted to implement a cap of 0.5pc on sulphur content in marine fuels by 2020.

The decision was made at the 70th meeting of the IMO's Marine Environment Protection Committee in London, and will see a global reduction in the maximum sulphur content of marine fuels from the current 3.5pc. The IMO's official study supported the 2020 date, although some IMO members and participants in the shipping industry were pushing for 2025, saying the expected surge in demand for low-sulphur fuels for shipping could result in shortages.

The agreement could force the majority of tanker and dry bulk carrier operators to switch from running fuel oil to burning cleaner middle distillates, principally marine gasoil (MGO). Supply of low-sulphur fuel will be sufficient to meet demand under all scenarios considered by the IMO in its official report, ranging from low to high-demand models. The rate of refinery upgrading work will exceed the rise in demand for higher quality, predominantly distillate fuels, according to the report by environmental consultancy CE Delft, which says any global shortages of low-sulphur fuel supplies will be "improbable".

Refiners should invest in cokers and increase output of distillates to blend high-sulphur residual fuel oil down to 0.5pc sulphur to meet the marine fuel regulation, industry participants at this month's Argus Fuel Oil and Feedstock conference in Miami said. Others said low-sulphur vacuum gasoil blended with residual fuel oil would be the most cost-effective way to meet the regulation.

The IMO's decision could accelerate investments by shipowners in LNG-burning engines and marine exhaust scrubbers, which remove sulphur from ships' exhaust fumes. The new 0.5pc sulphur blend is expected to be more expensive compared with high-sulphur fuel oil. High-sulphur fuel oil prices are likely to come under pressure, with the regulation eliminating much demand for the product while boosting buying interest in MGO. Market participants anticipate increased demand for tank space for bunker blending to meet the new regulations.