Shipowners appear to be taking the path of least resistance by planning to use low-sulphur distillates for their existing fleets in order to meet new IMO sulphur limits from 2020. But they remain concerned about the availability of fuel and are seeking further clarity from IMO over compliance.

While a majority of shipowners say they plan to use distillates to ensure their existing vessels remain compliant following the introduction of low-sulphur fuel regulations in 2020, many are concerned that external factors, such as a lack of fuel availability, will make compliance difficult.

A survey of 38 owners conducted last month by Drewry found that, in terms of ensuring compliance, 66% indicated that using low-sulphur fuel was the intended solution for their existing fleet.

That compared with the potential take up of other solutions, such as heavy fuel oil with exhaust SOx scrubbers (13%) or liquefied natural gas (8%), with owners wary of the cost implications for retrofitting new technologies to existing vessels.

For newbuildings, however, owners expressed more optimism over mitigation technologies and alternative fuels. Low-sulphur fuel remains the preferred option.

However, around a quarter of owners said they would consider LNG for newbuildings, and one fifth said scrubbers were an option.

“Decisions over whether to install scrubbers, switch to LNG-propelled ships, or simply bear the extra cost of using more expensive, compliant fuel will be preoccupying all shipowners in light of the International Maritime Organization’s proposed new bunker rules that will place a 0.5% sulphur cap on fuel in 2020,” said Drewry.

The availability of low-sulphur fuel and the limited capacity to fit scrubbers before the IMO deadline is a concern for owners, however, and respondents to the survey are worried they may not be able to comply in time.

“The IMO is expected to produce a set of guidelines to owners later this year that will clarify the tolerance levels for non-compliance, which will hopefully allay some owners’ fear of being punished in cases when they justifiably fail to meet the new standards,” Drewry said.

Scrubbers as a stop-gap
Owners that plan to, or already have, installed scrubbers said they were concerned scrubbers may only be a stop-gap solution. A high proportion of respondents believed further environmental legislation was likely to be introduced that could outlaw their use.

“The European Union, for example, ultimately wants shipping to become zero-carbon and is pressing for a minimum 70% cut in carbon emissions by 2050,” Drewry said.

“If owners who have invested in compliance with current regulations have their investments rendered obsolete by regulatory changes, it will dis-incentivise future compliance. Rational owners will adopt a wait and see attitude to avoid taking another write-down in the future,” one respondent to the survey said.

This has, however, increased the likelihood that future newbuildings are more likely to be powered by LNG.

“One likely consequence of the new bunker standards is that more owners will opt for LNG as a fuel, following recent high-profile orders from the likes of CMA CGM,” Drewry said.

Nevertheless, owners were still concerned that the infrastructure required for widespread LNG adoption was not yet in place, and that it would best suit vessels on fixed routes, such as container vessels on liner trades.

Moreover, it would not counter owners’ fears that costs would rise steeply. Over half of respondents believe their fuel costs will rise by more than 50%.

But the uncertainty over the new regulations has had one beneficial effect, Drewry said.

“Owners considered the new regulations had to some degree inhibited new orders,” Drewry said. “Some of the comments indicated that market conditions were still the primary driver of ordering behaviour and that if there has been any pull-back it will have been from speculative orders. As such, we consider that the IMO regulation has had some beneficial impact by tempering reckless orders.”

“Meeting the new bunker standards is a very real concern to many owners and the sooner the IMO can provide clarity on its enforcement the better,” Drewry said. “Owners must brace themselves for additional opex and capex costs associated to the legislation.”