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The ballooning costs will come as the change in regulations
forces a portion of the world's fleet to switch to lower sulfur,
but higher cost, fuels such as marine gasoil (MGO) and ultra low
sulfur fuel oil.
The International Maritime Organization's (IMO) rules targeting
air pollution will cut the maximum amount of sulfur emissions
that ships worldwide can burn to 0.5 percent of fuel content by
2020, from 3.5 percent currently.
Ships that install "scrubbers" can continue to burn cheaper high
sulfur fuel oil, but the bulk will not install these in time for
the shift in 2020.
"Switching to MGO is a more costly solution, and in full
compliance, would probably see freight rates increase, perhaps
by around $1 a barrel," said Wood Mackenzie senior research
analyst Iain Mowat.
Wood Mackenzie said its "base case" for cost increases is $24
billion in 2020, compared with a total global shipping fuel bill
of roughly $100 billion today. However, if no vessels added
scrubbers and all ships complied with the rules, the spike could
be as high as $60 billion.
The rule change marks a seismic shift for the shipping and
refining sectors. The IMO is meeting in London this week to hash
out further details on how it will implement the rules and
ensure compliance.
Mowat said that while shippers could expect a 20-50 percent
return on investment cost for installing scrubbers, the
penetration rate for them would be limited by factors including
limited access to finance, scrubber manufacturing capacity and
dry-dock space. Wood Mackenzie estimates just 2 percent of the
global fleet will have scrubbers by 2020.
As a result, Wood Mackenzie said the world's refiners need to
gear up to churn out the lower sulfur fuels that vessels will
need, and even the primary spots for refueling ships could shift
based on where lower sulfur fuels are available.
"Singapore, for example, could potentially lose some of its
market share for bunker fuels to China as shippers look for
alternative locations with a surplus of compliant fuels," Mowat
said. "China, with ample MGO supply, is well positioned to
attract shippers."
(Reporting By Libby George; Editing by Susan Fenton)
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