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The sulfur cap: one year on

“Smoother than expected”?

For a time, the introduction of scrubbers, as well as new low-sulfur fuels, looked like it might have been a disaster. But shipping appears to have adapted well to the new reality – promising, given the requirements of the next decades

From the beginning, the IMO’s 0.5% global sulfur cap was fraught by uncertainty. Fuel, said specialist Veritas Petroleum Services (VPS), was getting worse as-is: “off-spec” in relation to cat fines, flash points and thaw points. Only recently in Houston, Texas, bunker fuel was found to be contaminated by epoxy glue.

Now, it could be that untested low-sulfur distillates – Frankenstein-ish blends with high levels of aromatic compounds – would flocculate, becoming a waxy residue inside pipes and engines. Residual HFO in old fuel tanks would contaminate the very low-sulfur fuel oil (VLSFO) and worsen the problem.

Or, perhaps VLSFO shortages would force shipowners to buy non-compliant fuels. As the deadline loomed closer, this fear inverted: what if HFO were unavailable? With a tiny minority of vessels operating scrubbers, what if oil majors just didn’t bother to keep supply lines open? Why, then, would scrubber users see any discount?

The benefit of hindsight

As it happens, a number of fuel shortage cases have been reported, says the IMO – but it is vanishingly small. “Through 2020, just 55 cases of 0.50% compliant fuel being unavailable had been reported in IMO’s Global Integrated Shipping Information System (GISIS),” said Roel Hoenders, Head of Air Pollution and Energy Efficiency at IMO. “Given that more than 60,000 ships plied the world’s oceans in trade last year, this was a remarkably low percentage of ships encountering difficulty in obtaining compliant fuel.”

The picture in terms of safety is a little more mixed. In May, VPS reported 40 cases of damage to engines thanks to the new fuels, including calcium deposits and excessive liner wear. Speculation arose that a VLSFO-related loss-of-propulsion (LOP) was responsible for the Mauritius Wakashio grounding, though MOL’s subsequent incident report blamed a navigational error.

In January this year, IMO said it had not received any reports of safety issues relating to VLSFO throughout the whole of 2020; but, it has scheduled a discussion of measures to improve the standards of fuel oil at the next session of the Maritime Safety Committee (MSC), MSC 103, in May.

What about scrubbers?

In February 2020, Scorpio Tankers reported that its scrubber-fitted LR2s were saving $5,300 a day thanks to the pricing spread between VLSFO and HFO. But the April oil price crash soon put paid to that, narrowing the differential to $50 per tonne. Now unable to justify the cost of further retrofits, Scorpio Tankers and its sister firm Scorpio Bulkers postponed 32 scrubber installations between them.

Other shipowners followed suit. Analyst Platts revised down their expectations for scrubber retrofits. “Platts Analytics previously projected 3,500 scrubber installations globally by the start of 2021, but this will likely not be met, with disruptions from coronavirus and cancellations due to the narrowing price spread between high- and low-sulfur fuel,” Platts Senior Analyst Alexander Yap reported.
At the February 2021 SMM GMEC webinar, one scrubber manufacturer noted that fears of an anticipated bottleneck in scrubber retrofits had not materialised, thanks in part to the cancellations and delays.

There may, however, be more longevity in scrubber technology than previously thought. Ammonia scrubbers are already in use in agriculture and other industrial settings – it is easy to see how this technology could be adapted for an industry that may be about to switch to mass-adoption of ammonia fuel. Even carbon capture, manufacturers have gone on record as saying, is not off the table, suggesting shipping adopt a modular approach to exhaust gas treatment.

Some 2,350 scrubber systems have been reported to IMO as approved by flag States. The fuel price spread has not returned to the level seen in January 2020, when VLSFO was double the cost of HFO; but the gap is widening again, reaching $110. For these owners, payback will be slower than expected; but even so, the discussion is far from over.