Shipping operators face rise in fuel bills

Shipowners could face fuel cost increases of as much as 50 per cent after an International Maritime Organisation committee approved rules barring vessels from using their traditional heavy fuel in many parts of the world.

Passage of the rules has raised concerns about the ability of oil companies to meet the shipping industry’s fuel needs. Ships currently use oil known as bunker, which is the residue left after higher-quality products are refined out of crude oil and is far cheaper than other fuels.

Ships are now likely to be more dependent on refined products, known as distillates, for which there might not be enough production capacity.

The regulations were approved at a meeting last week in London of the marine environment protection committee of the IMO, the United Nations’ maritime organisation, in response to mounting pressure on shipping to reduce harmful emissions.

The rules are expected to be adopted formally by the committee at its next meeting in October and come into force 16 months after that. The rules will be obligatory for ships flying the flags of IMO member countries – the vast majority of international shipping.

They will in effect be obligatory for any ship sailing in territorial waters of IMO members.

In most areas, the rules will reduce the maximum sulphur oxide content from 4.5 per cent of emissions at present to 3.5 per cent from January 2012 and 0.5 per cent from January 2020.

In sulphur emission control zones – the most sensitive coastal areas – the proportions will fall from the current 1.5 per cent to 1 per cent by March 2010 and 0.1 per cent by January 2015.

Simon Bennett, secretary of the International Chamber of Shipping, a lobby group for shipowners, said the critical question would be which countries declared their coastal waters sulphur emission control zones before 2015.

Ships that need to use 1.5 per cent sulphur fuel can rely on specially treated bunker oil, but only distillates are likely to be pure enough to meet the 0.1 per cent sulphur requirement.

At present, the only sulphur emission control areas are the North Sea, including the English Channel, and the Baltic.

Mr Bennett said the ICS expected that the east and west coasts of Canada and the US would adopt the ranking by the time the rules came into force, as would almost all of the European coastline.

“Ships trading in those areas in practice will need to use distilled fuels,” he said.

An alternative to using higher-quality fuel under the rules will be to use cleaning technology to scrub the exhaust gases – although it is thought most owners are likely to find distillates cheaper.

It was hard to be sure how costs would be affected by the switch to distillates, Mr Bennett said. But he added: “Some people have suggested you may be talking about a 50 per cent increase in fuel costs.”

Source: Financial Times