The fuel that ships currently use literally comes from the bottom of the refining barrel. The new rules, adopted in 2016 by the International Maritime Organization, or IMO, an agency of the United Nations, mandate that the maximum sulfur content in marine fuels be reduced to 0.5% from 3.5%. A 2016 study by the Finnish Meteorological Institute predicted that the rules could extend the lives of 570,000 people who would have died prematurely from 2020 to 2025. It is an enormous shift, affecting as much as 5% of global oil demand. And it won’t come cheap. The dirtier fuel costs roughly $325 a ton, while one kind of compliant fuel goes for $600, according to IHS Markit. And that spread could widen further once the deadline passes. IMO 2020, as the new rules are called, could cost the shipping industry $60 billion a year to put into effect, according to energy research firm Wood Mackenzie. Assuming full compliance, the total cost of the regulations could be as much as $240 billion, Goldman Sachs estimates—with much of that cost eventually borne by consumers. Those costs will first fall on shipowners. They can switch to cleaner marine fuels, install “scrubbers” that can reduce emissions from sulfur-heavy fuel—or try to skirt the regulations. Evading detection could prove difficult, however. The IMO has broad authority to set rules for international shipping, and countries around the world are expected to enforce compliance.Despite the costs, some investors expect certain shipping companies to benefit from the changes. Those that install scrubbers, for instance, can run their ships on sulfur-heavy fuel oil, which will probably get much cheaper once other shipowners are forced to buy low-sulfur blends.

3,694 scrubbers have been installed or on order to date. Of those 65 are closed loop while the remaining are either hybrid or open loop systems. Wartsilla, Yara Marine, and Alfa Laval have installed ~1,400 of those scrubbers. LiqTech has a framework agreement to be a supplier of membranes to those 3 manufacturers.

Around 16% of the ocean carrier global fleet – equating to 36% in terms of teu capacity – will be equipped with exhaust gas cleaning scrubber systems to comply with the IMO 2020 0.5% sulphur cap, according to Alphaliner. “With the cost of scrubbers falling rapidly, to just $3-$5m a unit compared with $5-$8m a year ago, the scrubber option has become more attractive for owners.” It noted that several carriers, including Maersk Line and Hapag-Lloyd, which had initially expressed doubts over the use of scrubbers, had “changed their minds”.

With IMO 2020 which reduces the allowable sulfur content from 3.5% to 0.5% as of Jan 2020, ships will either have to switch to low-sulfur fuel or install scrubbers. Derek Novak, Senior Vice President of Engineering and Technology and the American Bureau of Shipping, explained at the forum that the total adoption of scrubbers as of October 2018 amounted to 1,509 units, with 665 to be installed on newbuild vessels and 844 to be retrofitted. Novak expects that a total of 2,000 to 3,000 vessels will be outfitted with scrubbers to comply with the new regulations. Assuming the total merchant marine fleet amounts to close to 60,000 vessels, those 2,000-3,000 scrubbers make up only 3%-5% of the entire fleet.

According to industry analysis seen by the Guardian, between 2,300 and 4,500 ships are likely to install an exhaust gas cleaning system known as a scrubber to meet the regulations on low-sulphur fuel instead of buying the more expensive clean fuel. The scrubbers allow ship owners to continue buying cheaper high-sulphur fuel, which is washed onboard in the scrubber. In the case of the most used system, known as open loop, the waste water is discharged into the ocean. Although expensive at around $2-4m per ship fitting, the cost of buying and fitting a scrubber would be recovered in the first year, the industry analysis says.Cleaner low-sulphur fuel is likely to cost between $300 and $500 more a tonne, according to analysts.Ned Molloy, an independent shipping analyst, said that although the scrubbers were allowed by the IMO as a way to meet the lower-sulphur emissions rules, they were little more than an “environmental dodge”. Molloy said the scrubbers that had so far been fitted on the global fleet in advance of the 2020 deadline were mostly open-loop systems, which discharge into the sea, rather than the more expensive closed-loop systems, which require storage of waste water to be discharged into a facility on shore. “There is growing concern, particularly in EU countries, about whether open-loop scrubbers should be allowed.”

The year 2020 has been one of unexpected change and it has been no different for the maritime space . . . The most recent wave of change came in the form of a proposal to the IMO from Trafigura introducing a carbon levy of between $250 per metric ton (/mt) and $300/mt of CO2 equivalent on shipping fuels . . . In 2019, there were about 7,400 crude oil tankers in use globally, of which only about 175 of them are LNG-fueled vessels (just under 2.5%). The Trafigura proposal would impact 97% of the oil tanker fleet and give any owners or charters of LNG-fueled vessels a significant competitive advantage in the market.