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Shippers usher in 2020 amid new fuel-for-ship concerns

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With about 7.8 billion people across the world ushering in the New Year 2020, the maritime industry is in dilemma on the likely consequences of the low carbon emission agenda of the International Maritime Organisation (IMO), designed to curb pollution produced by the world’s ships.

The low carbon emission target for ships takes off today January 1, 2020, amid speculations on compliance and smooth implementation of the clean fuel for ships programme.

Already, importers are wary of the attendant increase in rates as implications of various fuel grades and technology alternatives available to shipping firms.

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According to IMO, the regulation that will substantially reduce harmful sulphur oxide (SOx) emissions from ships comes into effect from today, bringing significant benefits for both human health and the environment.

Henceforth, the global upper limit on the sulphur content of ships’ fuel oil will be reduced to 0.50 per cent (from 3.50 per cent).

Known as “IMO 2020”, the reduced limit is mandatory for all ships operating outside certain designated Emission Control Areas, where the limit is already 0.10 per cent.

The new limit will mean a 77 per cent drop in overall SOx emissions from ships, equivalent to an annual reduction of approximately 8.5 million metric tonnes of SOx. Particulate matter – tiny harmful particles which form when fuel is burnt, will also be reduced.

As a result, reductions in stroke, asthma, lung cancer, cardiovascular and pulmonary diseases are expected. Cutting sulphur emissions from ships will also help prevent acid rain and ocean acidification, benefitting crops, forests and aquatic species.

The new limit is part of the International Convention for the Prevention of Pollution form ships (MARPOL), a key environmental treaty under the auspices of the IMO – the United Nations specialized agency responsible for developing and adopting standards for preventing pollution from ships, as well as shipping safety and efficiency, and maritime security.

The change means that ships would require a fuel product to meet the more stringent rules. It also means; ships found in violation of the new law risk being impounded as ports are expected to police visiting vessels.

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When the rule was announced, most in the industry felt, it could be disruptive to the global economy, and especially to the shipping industry. After all, maritime transport is critical to the global economy. As per the United Nations, more than 90 per cent of the world’s trade is carried by sea.

By far, it is also the most cost-effective way to move goods and raw materials, across the globe.

In Nigeria, there are worries that the new rule would trigger the cost of shipping with many shipping lines adjusting their rates based on the additional investment required to meet the IMO’s target.

Nigeria, as an import-based nation with no ships for its import and export cargoes, is bound to be badly hit by this impending freight hikes. The shippers will pay astronomically high freight rate, and this, no doubt, will be passed on to the consumers.

However, the nation also stands a chance of having a higher demand for its sweet crude from this year, if the government takes full advantage of the new fuel sulphur regulation.

Hameed Alaba of Downstream Advisors Inc said there would be an unprecedented increase in demand for the Nigerian sweet crude, resulting in increased government revenue.

“There is going to be a struggle to get sweet crude because now you are bound by regulation to produce low sulphur fuel, so you would go for the sweet crude other than the heavy crude,” he noted.

Energy Utilities and Resources Leader, PwC Nigeria, Pedro Omontuemhen, said the overall impact of the IMO 2020 would be determined by the work that would be done and the strategy adopted by the Federal Government.

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He said, “It could come out to be positive if we take advantage of the increased demand that we foresee that is going to be placed on the low sulphur crude oil.

“It may have an impact on the domestic pump prices of petroleum products. Clearly the shipping cost will go up. If shipping cost goes up, that means landing cost will go up.

“So one of the things the government can do is to pass on that cost to the consumers or, like we are currently doing, continue to absorb it and call it under-recovery or subsidy,” he stated.

Steve Jones of Energex Partners, said the impact of the new regulations on the African oil sector will be profound.

He said, “Compared to the global average, there are generally less complex refineries in Africa; there are government subsidies for road-fuel; there is a higher dependence on imported fuels (which are expected to increase in price); and a higher proportion of power generation fed by high sulphur fuels. The challenges posed by the new regulations must be understood and prepared for by all those affected.

“There are knock-on effects all the way through to the African oil industry. For African producers who produce sweet crude, it is a very good thing; that crude will become more valuable for the African refiners because of their low complexity.

“It can be a good thing if they can access sweet crudes and run their basic distillation units with sweet crude,” he stated.

The Director-General of the Nigerian Maritime Administration and Safety Agency (NIMASA) Dr. Dakuku Peterside, stated that NIMASA would strictly implement the IMO 2020 sulphur cap.

Peterside believes that the 2020 regulation on fuels will bring more energy efficiency and it will also control better the environmental pollution.

He specifically said Nigeria couldn’t afford to comply with the sulphur cap, which will also mitigate global warming and other related environmental issues.

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Secretary-General, IMO Kitack Lim, said: “For the past three years, IMO Member States, the shipping industry and fuel oil suppliers have been working tirelessly to prepare for this major change in the sulphur content of ships’ fuel oil. I am confident that the benefits will soon be felt and that implementation will be smooth.”

He added: “I am very appreciative of all the efforts made by refineries, ship owners, seafarers, industry organizations and others in preparing for this hugely important change – which will have significant positive benefits for human health and the environment.”

Secretary-General of the International Chamber of Shipping (ICS), Guy Platten, said the group which represents 80 per cent of the global shipping industry, is proposing a $2 levy on every tonne of fuel consumed by ships, raising $500m a year that would be devoted to research and development of zero-carbon vessels.

Platten said: “This is a very positive proposal. We need to get to zero carbon [for shipping] and this is a transparent mechanism for raising funds that we need to help us do that. We have worked for years on this with the support of our members.”

President, Cyprus Shipping Chamber, Philippos Philis, said the group has also called on the authorities to have a “realistic and pragmatic approach” when enforcing the reduced sulphur emission controls for ships.

He said: “There is no doubt that the new regulation will have great environmental and human health benefits. The Cyprus shipping industry has supported the implementation of the regulation,”

“We urge bunker fuel suppliers to ensure the supply of safe and compliant fuel and at the same time we call on governments and their port state control authorities to provide consistency and a common-sense approach to enforcement during the initial weeks of implementation, provided shipowners can demonstrate they have done everything in their power to comply.

“The global shipping industry is determined to address the environmental impacts of shipping so that we can continue to drive global trade sustainably,” Philis said.

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