IMO 2020’s prime aim is to clean the air we breathe of poisonous sulphur in exhaust gases spewing from ships’ funnels. Early indications suggest the industry is making a strong effort to comply with the new rules — but there are also signs of hidden problems emerging.

Danish bunker supplier Monjasa reported a surge in sales of very low-sulphur fuel oil (VLSFO) in the opening weeks of the year. If that continued, it would supply 7m tonnes of bunkers this year, up from about 4m tonnes in 2019.

Chief operating officer Svend Molholt says that is unlikely, as the market will regain greater balance over 2020, but he expects Monjasa to benefit from more shipowners looking to secure top-quality low-sulphur fuels from reputable suppliers. It is also strictly documenting all sales of high-sulphur fuel oil (HSFO) to ensure buyers do have scrubbers fitted.

“We make sure we have the documentary support we need to deliver [3.5%-sulphur] bunkers, and we have not seen any challenges obtaining that. We see good compliance as we enter 2020.”

And as HSFO becomes harder to source in smaller niche bunkering ports where it will not be economically viable for suppliers to store it for low demand, Molholt argues that policing the new rules may not be a significant issue, because the industry will be made to comply by the market forces of supply and demand.

“We think that as a result IMO 2020 is giving the environmental benefits that were its goal,” he adds.

The International Chamber of Shipping’s senior technical advisor, Sunil Krishnakumar, says of the IMO 2020 port state control enforcement actions reported so far in China and Singapore: “We are encouraged to see these cases were not a result of blatant non-compliance efforts, but based on improper changeover procedures.”

That could happen as a result of accidental contamination of new fuel by residues from HSFO. But there are also reports of supposedly compliant fuels breaking the 0.5% limit when samples are laboratory-tested, indicating that some suppliers of blended low-sulphur bunkers are sailing as close to the extent of the regulations as possible, he adds.

“It raises the importance of having the proper verification standards that were agreed at the last MEPC [IMO Marine Environment Protection Committee],” Krishnakumar says.

It’s been an encouraging start, says Sunil Krishnakumar. Photo: ICS

The MEPC proposed that samples from bunker suppliers should not exceed the 0.5% sulphur content limit, but a 0.53% level will be allowed when they are taken onboard ships. The leeway would reflect the lack of control that vessel operators have over how fuels are blended.

Three weeks into IMO 2020, two organisations responsible for enforcing the new rules, the Tokyo and Paris Memoranda of Understanding (MOU) on Port State Control warned there will be zero tolerance of breaches once the heavy fuel oil (HFO) carriage ban comes into effect on 1 March.

Paris MOU secretary general Luc Smulders said he had not received detailed information on inspections after the 1 January deadline. “As far as I can ascertain, no ships have been detained in the past three weeks for non-compliance with the sulphur requirements.”

Even an executive at a major US shipowner that has fitted scrubbers and is happy about the savings it is making from the lower cost of high-sulphur fuels doesn’t buy the arguments raised by scrubber supporter the Clean Shipping Alliance (CSA 2020) that the exhaust gas effluent is not harmful to the environment.

“It’s quite reasonable for someone to say, ‘I don’t want my kid swimming in scrubber water’,” he says.

“Those arguing that scrubbers are just fine, that’s completely nonsensical. No, of course they’re not harmless, but they’re a better alternative than spewing sulphur dioxide into the air. The reality is, we’re in a transition period, and they’re a better alternative in that transition period.”

He concedes that a continued acceleration of coastal bans on scrubbers does make an eventual IMO ban on them more likely: “Whether that’s five, 10 or 15 years from now, we don’t know.”

CSA 2020 executive director Ian Adams told TradeWinds that although the organisation has focused on scrubbers until now, it could expand its remit in future to the wider issues of greenhouse gases (GHGs) and other pollutant emissions.

But in the first month of IMO 2020, shipping lawyers were telling TradeWinds they were already dealing with cases arising out of the new rules.

Adrian Tolson of communications consultancy BLUE. Photo: John Galayda/TradeWinds Events

“It’s coming down the track big-time. It could take a couple of years for all this to settle down,” one legal source said. Initial claims are arising from charter disputes over costs rising due to the higher price of compliant bunkers, but future battles are expected to relate to rows over divergent sulphur content readings and how fuels are tested.

Alessio Sbraga, a partner at law firm HFW’s global shipping group, said: “The frequency, cost and complexity of these cases are likely to rise over at least the next six months to a year as players seek to maintain compliance and protect themselves, despite having sought to minimise their exposure through protective provisions under contracts.”

Refining residual fuels to the 3.5% limit is relatively easy and usually allows a broad margin of safety over the sulphur level, according to Marcus Dodds, a partner at Reed Smith, who has heard of issues arising over the suspected instability of new 0.5% blends.

“Hitting the 0.5% limit is more difficult and the margins will be much tighter than in the past, not least for commercial reasons. There are so many potential sources for blended fuels and so many refineries to produce them. There is not a single cocktail. We’re still at a very early stage in this story,” he said.

One Mediterranean bunker supplier claims he has heard that lawyers say some operators are putting in pre-emptive claims to cover the potential of fuels being off-specification before testing results arrive, in an attempt to avoid being caught out.

Bunker markets analyst Adrian Tolson, who is insight lead at BLUE after merging his firm 20|20 Marine Energy with the communications consultancy, says the fuel switch generally appears to have gone well despite early major price gyrations caused mainly by shortages of bunker barges and equipment in some ports.

Delivery delays caused smaller tramp owners unable to contract ahead for fuels to scurry around to find where they could take on bunkers. Bottlenecks led to price spikes. In Singapore, delays of up to 10 days for supplies pushed VLSFO towards $700 per tonne. The compliant fuel was for a while around $100 more expensive than marine gas oil — a level that under normal conditions would make no sense at all.

With each type of oil totally different from the next, there is bound to be trouble somewhere

Panos Zachariadis

Maritime security consultancy Gray Page cited reports from India that there was “virtually no supply of low-sulphur fuel oil [LSFO]”. Greek owners said smaller operators are having to accept whatever fuel sellers demand.

“It’s the Wild West,” Panos Zachariadis, technical director of Atlantic Bulk Carriers Management, said at the Naftemporiki Shipping Forum in Athens, adding that bunker suppliers were forcing crews to accept their samples instead of allowing them to be taken at the ship’s manifold.

That take-it-or-leave-it attitude puts owners in a weak legal position if follow-up tests show the fuel exceeded the 0.5% sulphur cap, because it would be difficult to prove responsibility lay with the bunker supplier rather than with the vessel.

Tolson admits the price spreads between high and low sulphur were wider than most analysts expected, and he is struck by the fact that even Iran expressed concern at whether it could supply enough VLSFO to its tanker fleet at a time of tensions with the US.

“There is a lot going on behind the scenes,” he cautions, “and shipping does not air its dirty laundry in public. Horror stories will probably come out in time.”

But Tolson also adds: “Most people seem to accept that burning high-sulphur fuels with a high level of carcinogens is bad, so maybe when we assume everyone is mercenary and out to make a fast buck, there is something deeper to this.

“I may sound a bit utopian, but I think people within the shipping and oil industries recognise there is more to this regulation, it has to happen and, are willing to make efforts to make it happen.”

Monjasa's Svend Stenberg Moholt Photo: Monjasa

Molholt says: “The beautiful thing is, whether it is supply and demand or conscience that is dictating compliance doesn’t really matter. It goes hand in hand and makes it easier to be a bunker supplier or a shipowner when there is a level playing field, and at the same time it is good for the environment.”

But bunker testing company Veritas Petroleum Services (VPS) is reporting an unusually high number of problems with sediment formation arising from instability in low-sulphur fuels.

Between 24 December and 21 January, it issued seven notices relating to sediment issues in VLSFO, with warnings in Singapore, Piraeus, Amsterdam, Rotterdam, Miami and San Vincente.

VPS group commercial and business development director Steve Bee said: “I’ve never known such a concentrated frequency of bunker alerts to be issued in relation to a single fuel-quality problem as we have seen with sediment problems in LSFOs over the past four weeks.”

Zachariadis is aware of a case in which a blended oil began to block a ship’s filters after degenerating within one week. “With each type of oil totally different from the next, there is bound to be trouble somewhere,” he adds.

Even if it still appears to be a relatively good start to tackling shipping’s pollution problems, given the dire warnings ahead of the changeover, there is a long way to go, and the wider costs of hitting IMO targets to cut carbon emissions by 40% in 2030 and 50% by 2050 will be huge.

Bunker testing company Veritas Petroleum Services is reporting an unusually high number of problems with sediment formation arising from instability in low-sulphur fuels. Photo: VPS

Analysis by University College London’s University Maritime Advisory Services and the Energy Transitions Commission for green shipping platform Getting to Zero Coalition has put a hefty price tag on the efforts required to slash GHG output.

Their studies forecast the final bill for realising the IMO targets between 2030 and 2050 could easily be $1.4trn — averaging $50bn-$70bn annually. The largest part of those sums would pay for significant infrastructure investments to produce new fuels and supply chains, with a new or retrofitted fleet amounting to less than 15% of the total.

Efforts that have been proposed to go before the IMO for consideration this year include a plan from the main shipping organisations to set up a $5bn research body to help develop low- or zero-carbon technologies and fuels that can be used across the world fleet. Much more expensive carbon pricing and bunker levy strategies that will ultimately be needed to fund full decarbonisation could add $400bn to the estimates.

The IMO is pleased with the start to the low-sulphur switchover, claiming it was aware of only 10 cases of compliant fuel being unavailable in the first 20 days of the new year.

“It is testimony to the diligence and dedication of IMO, its member states, the shipping industry, the fuel supply industry and other relevant industries that such a major rule change is being implemented successfully without significant disruption to maritime transport,” IMO general secretary Kitack Lim said.

But there is also a possibility that the shift has been an almighty own goal, with suggestions that VLSFO blended fuels contain up to 95% aromatic compounds, leading to an increase of between 10% and 85% in black carbon emissions compared with HFO.

The Clean Arctic Alliance of 18 environmental organisations has asked for clarification of whether shipping associations are aware of the problem and if they have alerted the IMO.

And warnings about the downsides of LNG continue to stack up. The International Council on Clean Transportation has found that the most popular LNG-fuelled ship engine emits between 70% and 82% more GHGs than distillate fuels over a 20-year period.

Lim responded to a letter from WWF and other environmental groups pushing for higher carbon-reduction goals and full decarbonisation of the world fleet before 2050 by saying: “I share your concerns, I agree working together is vital. We must accelerate our efforts. We have no time to waste and we cannot afford to fail.”

Harry Papachristou, Joe Brady and Gary Dixon contributed to this article

BunkerTrace CEO Marc Johnson says testing takes five minutes to set up and one minute to perform. Photo: BLOC

On the right track | ‘DNA tag’ to trace bunkers

A start-up aims to assure shipowners about fuel quality by adding a tagging element that can be tracked online each step of the bunkering process.

Launched last October, BunkerTrace claims it can tag fuels with a synthetic DNA that gives each batch an individual coding. That code can be tracked via a blockchain digital platform to provide an audit trail.

BunkerTrace recently signed up its first vessel owner, small bulker operator Marfin Management. The start-up’s technical sales director, Stuart Hall, tells TW+: “Marfin has taken on the technology not just for the fuel assurance but for the oversight, the control it gives them of the whole bunkering process. It takes them beyond 2020 toward 2030 and it allows them to drive efficiencies.

“The discussions we are having with people have, to a certain extent, moved beyond 2020. Ultimately, shipowners have accepted they need to take more control.” He expects BunkerTrace to have at least six or seven major customers by the end of the year.

Chief executive Marc Johnson says the physical tracers provide an ability to track the fuel through the supply chain and allow quick tests to check whether it has been adulterated at any point from transfer from a shoreside terminal to bunker barge and end-user vessel.

Testing takes five minutes to set up and one minute to perform, he claims, drastically cutting the delays in sending samples away for laboratory analysis. Online recording means there is proof of when and where contamination is likely to have taken place, with evidence that can be used in court.

Johnson says BunkerTrace is getting interest from smaller owners to major operators, independent surveyors, fuel trading companies, port authorities and bunker supply companies.

“It’s a huge differentiator for the quality companies, but you cannot always guarantee you will be able to get fuel from them,” Hall adds.

He concedes that not all ship operators will pay for the service and are prepared to risk being supplied with dodgy fuels. “Some companies don’t want to pay a dollar more, others say if you take the big picture into account of what it costs in legal actions and vessels being held in port, then a small extra charge is acceptable.”

BunkerTrace is looking beyond 2020 to the wider issue of greenhouse gas emissions. “We are actively pursuing opportunities to more accurately monitor embedded emissions in the fuels supply chain — both upstream prior to the bunkering operation and downstream to consumption onboard the vessel,” Johnson says.