Home / Media / What are the challenges and opportunities with the impending MARPOL Bunker Fuel Regulation?

What are the challenges and opportunities with the impending MARPOL Bunker Fuel Regulation?

In 2020, change is coming to the industry with new global sulfur limits for bunker fuel as a result of the IMO’s MARPOL Annex VI regulation. The regulation will see new, lower, limits being implemented, affecting over 3 million b/d of residual fuel oil (resid). Uncertainty over whether this change was coming has existed for years so the clarity now provided is a relief for many. But what will the key impact of the MARPOL Bunker Fuel Regulation be and what challenges and opportunities could arise from it?

MARPOL Bunker Fuel Regulation

The new regulation will lower global sulfur limits for bunker fuel. From the current 3.5%, when the regulation comes into effect in 2020, this limit will be reduced to 0.5%. The demand for high-sulfur resid for ship bunkers reached 95.4 million b/d of total oil demand in 2016 and so the regulation is likely to have an impact on refiners in regions all over the world, as well as on crude producers, bunker suppliers and shipping lines.

The challenges for the refining sector

According to the UK Petroleum Industry Association (UKPIA), the new limit will have “a massive impact on refinery configuration and operations.” It will require investment in upgrading fuel oil residues to gasoil grades, reduction of residue production, desulphurisation or the stopping of production of fuel oil. The main challenge inherent in all of these changes is that they require significant investment to effect.

The impact on the fuel oil market and shipping industry

Although the extent of the changes won’t be obvious until 2020 there has already been a drop in fuel oil value, as the market anticipates a fall in demand as a result of the new regulations. It’s not yet clear what the price of 0.5% sulfur bunker fuel will be yet – it could be significantly higher given the expense involved in desulphurisation and a smaller pool of blending components being available at lower sulfur levels. Additional costs to the shipping industry as a result of the imposition of the new limits have been estimated at $5.85 billion but no solid figures have yet been produced. Some have suggested that pushing the deadline back further could limit this cost burden – according to International Bunker Industry Association Unni Einemo, a 2025 deadline would save the shipping industry somewhere between $30 billion and $50 billion annually.

The challenge of enforcement

For the MARPOL Bunker Fuel Regulation to have any real impact, enforcement of breaches of its requirements is going to have to be strict. Risk-free non-compliance as a result of inadequate detection methods, few sanctions and a lack of robust legal framework is a serious cause for concern. Currently, no global entity is responsible for enforcement or sanctions, as these are made locally and could differ significantly from one location to the next, making consistent and effective enforcement a real challenge.

Why has the change been made?

It’s clear that the new cap will have a significant impact in terms of industry so why is such a dramatic step being taken? A main motivator is human health – a reduction in global sulfur limits for bunker fuel presents a real opportunity to make a difference. Air pollution from shipping accounts for about 50,000 premature deaths per year in Europe alone according to Transport & Environment, a campaign group for greener transport policies. The societal cost of this is in excess of €58 billion.