Global Shipping Fuel Costs to Rise 25% in 2020 due to New Sulfur Rules

The global average cost of shipping fuels will rise by around 25% in 2020, due to the new sulfur limits set to go into effect then, according to a new report from the consultancy Wood Mackenzie.

That rise would represent an increase of around $24 billion a year at current prices — representing a fair raise to operating costs for shipping firms (current annual fuel prices for the shipping industry total around $100 billion).  That figure could actually rise as high as $60 billion extra a year, though, if no ships were to install scrubbers (and thus if all ships simply switched to low-sulfur options).

As some background here, the new rules being imposed in 2020 by the International Maritime Organization are aimed at reducing air pollutant emissions via the requirement that ships switch over to low-sulfur fuels.

In particular, the rules are expected to force many ships to switch over to marine gasoil and ultra-low-sulfur fuel oil.

Reuters provides more, noting that the new rules “will cut the maximum amount of sulfur emissions that ships worldwide can burn to 0.5% of fuel content by 2020, from 3.5% 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 (marine-gasoil) is a more costly solution, and in full compliance, would probably see freight rates increase, perhaps by around $1 a barrel,” explained Wood Mackenzie senior analyst Iain Mowat.

Presumably, though, many ships will simply install scrubbers.  There’s a limit to the number that can do so in time to meet the 2020 deadline, though — owing to realities of limited dry-dock space for installation, high upfront costs, etc.

If Wood Mackenzie analysts are to be believed, then only around 2% of the global shipping fleet will have installed scrubbers by 2020.  That being the case, there will likely be numerous firms and ships trying to skirt the rules in some way (in order to greatly reduce operational costs).

With that in mind, how effectively will the new rules be enforced?  Going on the shipping industry as whole in recent decades, likely not very well.

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