International Maritime Organization and the oil industry

The International Maritime Organization (IMO) will enforce new regulations to limit the pollution produced by the merchant ships. It will be one of the most critical decisions in decades which will affect the oil prices and oil industry in general. In less than six months oil producers, ship owners will have to make a drastic change to comply with the emissions standards. It is no small task when taking into a considerable number of tankers which companies use to transport oil.

On a typical day, a vast number of tankers are transporting oil around the world. These ships use more than 3 million barrels of high-sulfur fuel every day. The IMO wants to reduce the level of sulfur in fuel from the current 3.5% to 0.5%. The point of this decision is to reduce the emissions significantly and to make shipping more environment-friendly.

To better understand why the IMO decided to implement the new regulations, it is a good idea to start from the beginning. More than a decade ago subcommittee of the United Nations recommended lowering the sulfur level in fuel. Another UN entity, which is an International Maritime Organization, adopted these regulations in 2016. The purpose of IMO is to control shipping safety, security, and pollution. Shipping millions of barrels per day requires a huge amount of fuel, and the organization decided to reorganize this business.

Out of 193 UN member states, 170 signed an agreement to sulfur level. It means that from January 2020 countries as well as companies will have to adapt to reality. Ships which will violate the new rules, face the serious consequences. These ships will be forbidden from leaving the ports. The responsibility to uphold the regulations falls on the ports of the countries which signed the agreement. This will increase expenses and as result increase oil prices.

The stages of implementations

There are several ways to meet the new emissions standards. It varies depending on the price which ship owners are ready to pay to modernize their ships. One of the solutions is to decrease the speed of the tanker. However, it might prolong the process of delivery, and this might increase oil prices. Another option is to install an exhaust gas cleaning system. The most expensive decision is to switch to liquefied natural gas. Shipowners who will choose the exhaust gas cleaning system will continue using the same fuel in 2020. Thanks to this system, the sulfur level in fuel will drop from 3.5% to 0.5%.

The new regulation is a bigger issue for companies in the container industry. According to the forecasts, costs will rise by $10 billion. The biggest operators of the container ship Maersk and MSC expect that in case of failure to meet the new regulations each of them will lose $2 billion.

The new emissions standards are one of the most serious changes in several decades. The shipping industry is trying to comply with new regulations. Shipowners, as well as other interested organizations, have less than six months to choose the best solution which will work for them.