Is Your Company Prepared for IMO 2020?
On January 1st, the maritime industry will be subject to the new IMO 2020 regulations dramatically limiting the amount of sulphur emissions from ships.
In line with the growing green movement leading to United Nations initiatives like the Paris Agreement, IMO 2020 curtails harmful emissions that damage air quality, impact human health, and adversely affect the environment.
While the end result requires ships emit no more than 0.50% m/m of sulfur content in ships fuel oil, there are several ways that the industry can meet IMO 2020 compliance requirements:
- Switching bunker fuel supplies from high-sulfur to low-sulfur
- Retrofitting ships by installing exhaust gas cleaning systems, or “scrubbers”
- Converting to an alternative fuel like LNG
These changes require advanced planning and financial investments in new technology or resources — effects that will reverberate throughout the maritime industry supply chain.
And the IMO 2020 impact won’t just be felt in the maritime industry, which is already scrambling to adapt their fuel sources. With higher demand for low-sulfur diesel, certain refineries will need to reconcile an oversupply of high-sulfur diesel and limited capacity for low-sulfur diesel refining — all of which lead to massive price volatility. End consumers, the airline industry, and the heating oil industries will face price volatility as well with increased demand for the fuel supplies they rely on.
How Will IMO 2020 Impact the Maritime Industry?
ION Commodities Chief Strategy Officer Michael W. Hinton recently wrote about the topic for Shale Magazine:
“While the IMO first announced the regulation in 2008, companies are just now scrambling to comply in the remaining eight months before they go into effect. While they’ll face the same pricing volatility as suppliers, consumers looking to find alternatives to the increasingly expensive bunker fuel will likely install scrubbers to sustain the consumption of the cheaper high sulfur. However, scrubbers pose challenges due to limitation factors like high costs, manufacturing capacity, and a dearth of dry-dock space for installation over the next eight months.
This uncertainty and change may also force renegotiations of fuel oil contracts driving companies to evaluate their exposure to risk. The only way for consumers to adequately plan and understand their market position amid this volatility is to fully understand their bunker fuel optionality — the key to maintaining fuel costs in a competitive market.”
How Can the Maritime Industry and Refiners Prepare for IMO 2020 Regulations?
Both consumers and refiners will need clear insights and enhanced position visibility in order to mitigate risk during this period of volatility. This is where an enterprise commodity trading and risk management system like Allegro can help.