Sulphur cap regulation to squeeze Nigerian shippers by N1.8trn
The new International Maritime Organisation (IMO) decision to lower its global marine fuel sulphur limit to 0.5 percent in 2020 could cost Nigerian shipping companies over N1.8trillion in installation costs for exhaust gas abatement systems, an option which seems the most practical to ensure compliance.
On October 28, 2016, the IMO, a specialized agency of the United Nations, responsible for the global standard-setting authority for the safety, security and environmental performance of international shipping, formally decided to impose a global limit for sulphur in fuel oil used on board ships of 0.50% m/m (mass by mass) from 1 January 2020.
It says this will significantly reduce the amount of sulphur oxide emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.
However, current ship bunkers are not designed to run on low sulphur fuel. Fuel oil, high in sulphur content, has traditionally been used by the shipping industry as bunker fuel. Nigerians own about 1,227 vessels according to the Shipowners Association of Nigeria (SOAN), hence the fastest way to comply would be replacing the entire fleet for new ones which cost between $40m – $100m to acquire a single cargo ship.
Another option for shippers is to switch to alternative fuels like Liquefied Natural Gas (LNG). This would require investments in building infrastructure to deliver natural gas as a bunker fuel at scale, something the industry is not particularly keen about. So far only French company CMA CGM has ordered nine new LNG fuelled container ships.
SP Global Platts analysts say to beat the deadline, any large commercial ship that is not under construction 18 months before the IMO’s deadline is not going to leave the shipyard by 2020. So far, no ship owner or operator in Nigeria has a contract to build new LNG fuelled container ship and the industry still grapples with the most basic challenges of handling cargo, port charges and poor infrastructure.
However, experts say installation of scrubbers (exhaust gas abatement systems) which could cost anywhere between $3million to $5million, according to analysts at SP Platt’s may be the most pragmatic means to comply with the directive. The technology works by purifying dirty, heavy sulphur fuel of impurities before powering the vessel.
“Retrofitting a ship with a scrubber can take as little as 2-3 weeks in theory,” says Andrew Bonnington, director, Strategic Market Engagement for Europe & Africa at Platt’s at the company’s Lagos Oil and Energy forum.
Bonnington further said, “In practise, any ship-owner expecting to use one from the start of 2020 should order it several months before the deadline as the order books of scrubber manufacturers are likely to fill up quickly in 2019 and dry dock space may also be harder to find.”
IMO ratified the new rules after series of false starts to cut ship air pollution which is linked to approximately 400,000 premature deaths from lung cancer and cardiovascular disease alone and around 14 million childhood asthma cases annually, according to a UN research.
This rule has rattled ship owners globally and in Europe there is now a drive towards refining distillates as a cheaper option to comply with the 0.5 percent sulphur cap. Many ships are expected to experiment with blended fuel oils and new products which are outside of current standards.
Analysts fear that with the absence of global standards for some of these new blended fuels that could be produced to pass the bar of low sulphur content, may have some potential safety issues including those related to the use of compliant but incompatible bunkers which could lead to loss of power on a ship while in the middle of the Atlantic.
In Nigeria, the discourse around IMO sulphur cap has been drowned by a failed bid to get Nigeria representation on the IMO Council, the highest governing body of the organization, which comprises three categories A, B and C that classifies countries according the volume of their shipping services, seaborne trade maritime transport and navigation respectively.
Around the world, some big shipping companies are preparing to comply. Dannish container line, Maersk announced in May that it would not be using scrubbers to comply in 2020 rather it would comply with the sulphur cap.