How to comply with IMO 2020

A KPMG value proposition identifies key aspects in this transition imposed by the maritime regulator, the International Maritime Organization (IMO) that will take effect in less than six months.

The industry seems not yet ready.

Until the end of 2018 there was still an air of hope among a large number of shipping companies that expected the entry into force of the IMO 2020 on Sulphur emissions in fuel, to be postponed into the future, “resulting in a negligent stance against the implementation of preparedness measures, since these require a considerable financial investment,” reads the KPMG IMO 2020 Value Proposal report.

The multinational network of professional consulting services of KPMG decided to take a deeper look at the current situation and wrote a report with a value proposition on how to comply with the standard, identifying the key aspects in this inevitable transition towards IMO 2020.

Learning to comply

The report suggests three alternatives: low sulfur fuel (≤ 0.5%); high sulfur fuel (3.5% + scrubber); and natural liquefied gas (LNG).

All these options require large investments in the engine room. Either a scrubber or a new engine and combustion system will always translate to a high cost for the ship, so the shipowner should consider a thorough analysis including other variables, such as fuel cost to environmental impact before committing to a technology and energy source.

LSFO, HSFO (used in combination with a scrubber), ULSFO, MGO and LNG all have different prices and are governed by various indices that regulate their market values.

In addition, depending on the routes most traveled by ships, some will have access to fuels with more convenient bunker rates than others, although at a higher cost of refurbishing the ship, for example.

Third, there is the environmental impact. What is the case with the implementation of a rule that regulates the emission footprint if this variable is not considered in the decision-making process for the fuel chosen?

LNG is the least harmful to the environment, since it evaporates quickly when it falls to a surface –and even in the water.

Supply and demand is another factor to consider. The HSFO will continue to be the most accessible source of fuel, while the most environmentally friendly options are still in their development stages and have not yet achieved stability that allows projections of volume and value over time. To this are added the international economic and commercial conditions, which will also have effects on the spot rates of crude oil. Therefore, the decision is not simple and time is running.

LNG, the King

The report presents LNG as the fuel of the future.

“Because of its sustainable ecological impact and abundant reserves … at least until another source of energy is found and used.” However, its viability as fuel remains to be seen, since the European Commission will probably implement measures to disincentive the use of fuels high in harmful emissions (commonly known as ‘carbon tax’).

However, despite the fact that LNG has everything in its favor, since the industry in general speculated – and hoped – that the IMO 2020 standard would be postponed.

The LNG fleet is expected to be only around 500 ships, representing 2.5% of the world merchant fleet. “LNG could have the best prospects, with its ecological compatibility and economic use to become the fuel that boosts the maritime economy for years.”

Leave a Reply

Your email address will not be published. Required fields are marked *