High aims of “low” sulphur

Introduction of restrictions on sulphur content in ship fuel effective form 2015 may lead to an adverse impact not only on shipping and port industries but on ecology as well. Meanwhile, the strivings to accelerate their introduction also reveal financial interests of some EC members.

Sulphur layout

As it is known, from 2015 the Annex VI of MARPOL introduces stricter requirements for sulphur content in ship fuel (0.1% down from the present 1.0%) in Sulphur Emission Control Area (SECA) covering the Baltic Sea, North Sea and English Channel. It will result in sharp increase of costs for bunker fuel, re-equipment of the existing vessels and construction of new ones. Besides, considerable investments are required for the development of LNG bunkering infrastructure.

It is obvious, that certain industries and countries are to win with the new restrictions while others are to lose a lot. The formal aim of the innovations is to improve the ecological situation. Meanwhile, experts think that anti-sulphur initiatives solving one problem will give rise to a different one – increased emissions of carbon dioxide.

For example, according to the report  of AMEC Environment & Infrastructure UK Ltd commissioned by the UK Chamber of Shipping, operators of sea routes around the UK would need to increase ticket prices – by up to 20% for passengers and up to 29% for freight due to higher expenses for fuel and the necessity to install scrubbers. 

Earlier we covered the doubts of Finland and France.

The concern over the introduction of severe restrictions on sulphur content in bunker fuel was repeatedly expressed by the Danish Shipowners Association. 

With this, European ship owners count on possible support from the governments of the leading EU countries and on partial subsidizing of those costs.

Similar worries are expressed in Russia as well. For example, the participants of the conference “Ecology of Baltic navigation: in search of rational compromise” organized by PortNews Media Group in February 2013 came to a conclusion that meeting the requirement of such a low sulphur content may result, at least in the nearest future, in considerable rise of prices for this fuel as well as in its deficit. 

Experts and market players from different countries agree that all these may have a negative impact on competitiveness of the coastal shipping market against other types of transport thus resulting in partial shift of cargo to automobiles. Besides, it has been already proved that production of low-sulphur fuel leads to multiplication of greenhouse gas emissions. So, with the ecological improvement within SECA, remote densely populated inland areas will see drastic aggravation of the environmental situation. It turns out that “anti-sulphur” initiatives just facilitate global warming and make the “greenhouse effect” even worse.

The initiative to establish NOx content limits in the Baltic Sea area can finally finish off the shipping sector taking into account an extremely difficult situation at the freight market.

The EC approach

Nevertheless, in February 2013 the European Commission announced its decision not to revise the deadline for complying with the concentration limit values for sulphur. Moreover, a decision was taken not to authorize France or other EU member to apply to IMO with a request to postpone the effective date of Annex VI to MARPOL.

In the opinion of the EU Commissioners, the construction of new vessels and the development of LNG bunkering infrastructure will help the shipping industry recover from the negative consequences of the above measures. 

Meanwhile, some EC members can have also a personal interest in promotion of LNG as a bunker fuel. In particular, according to official information, Joaquin Almunia, Vice-President, Commissioner for Competition (Spain), owns a share in Gas Natural. Gas Natural Fenosa is the third energy company in Spain owing a fleet of 11 LNG tankers. It seems quite logical that in case of a large-scale transfer of vessels to LNG bunker fuel this company will not stay aside from the process.

EU already finances the project “LNG in the Baltic Sea Ports”.The following ports are the partners in the project: Aarhus, Helsingborg, Helsinki, Malmö-Copenhagen, Tallinn, Turku and Stockholm. The project was initiated by the Baltic Ports Organization (BPO). The total estimated eligible cost for the common actions is over EUR 4.7 mln. Half of this amount is contributed by EU TEN-T Programme. The completion date of the project is 31 December, 2014. The project will result in jointly developed operational ships bunkering installations in ports that can serve as objects of reference to other ports in the Baltic Sea region and to other regions in EU.

However, according to the opinion of the Project Leader Per Olof Jansson, the vessels will first have to shift to marine gas oil (MGO) in 2015 as the LNG infrastructure will not be sufficiently developed by that time. “We can see a big gap between the cost of low-sulphur and regular fuel and I think it will be even wider in the future,” says Per Olof Jansson.

It should be noted that LNG plants and terminals are currently concentrated along the Norwegian coast because of the geographical situation favorable for the infrastructure development.

Shipbuilders in Finland and Sweden able to produce purification systems and diesel plants meeting the new standards are also likely to win from introduction of restrictions for SOx and NOx emissions in the Baltic Sea Area.

According to the Project Leader, Some Baltic ports see their chances for development in new IMO requirements. It is believed that in many cases long sea routes may lose in favour of routes involving a shorter sea leg and longer land leg. This means that some Baltic ports may lose and some Baltic ports may win. In general, this may lead, to some extent, to a modal backshift from sea to road and or evan change directions of logistics flows in Europe in order to avoid the SECA.

What about Russia?

Introduction of new restrictions does not look good for Russia. First of all, the cost of dark bunker fuel in Russian ports is lower as compared with Rotterdam, for instance. According to the data available to PortNews IAA, the difference between the prices for heavy fuel oil in St. Petersburg and Rotterdam makes $70-80, which is 13% less at St. Petersburg. The difference registered in summer 2012 made $150-200, which is 25% less than in Rotterdam. As for MGO, the difference is not so sound and the prices are almost the same today. Hence it seems possible to assume that large-scale transfer to MGO will result in decreased attractiveness of Russian ports in terms of bunkering.

Besides, no real projects on the development of LNG bunkering infrastructure are commenced in Russia yet – they will require considerable investments and state support as this should be done parallel to solving the issues of LNG logistics from the zero-level (in contrast with the mentioned Norway, for example).

According to the comment provided to PortNews IAA by Vitali Kovalev, President of the self-regulatory organization Russian Association of Marine and River Bunker Suppliers, all the market participants are expecting financial losses and possible shrinkage of business volumes with the introduction of restrictions in 2015. 

In an effort to reduce the risks of the bunker community members, the Association has submitted and official letter to RF Prime Minister Dmitry Medvedev, having emphasized the significance of the business for the attractiveness of Russian seaports for foreign ship owners as well as the contribution of the bunkering companies into the Russian Gross Domestic Product (GDP). According to Kovalev, introduction of the restrictions will inevitably entail crucial reduction of sea cargo turnover with EU, GB, USA and, consequently, a considerable decrease of trade turnover if necessary LNG bunkering infrastructure is not developed at national seaports. This issue will be comprehensively covered at the the Sixth All-Russian Forum "Present State and Development Prospects of Russian Bunker Services Market” which is to take place in St. Petersburg on June 27-28, 2013.

Vitali Chernov