In the latest press release for the company’s financial results to the end of Q3 2018, Euronav provided an addendum listing the company’s concerns regarding the IMO 2020 global sulphur cap, which we reproduce below in full.
Euronav chief executive, Paddy Rodgers, will be speaking at the industry leaders’ forum about preparations for 2020 alongside Ardmore Shipping executive vice president and chief operating officer, Mark Cameron, Concordia Maritime chief executive officer Kim Ullman and AET Tanker Holdings president and chief executive officer Capt Rajalingam Subramaniam.
Potential installation of exhaust gas cleaning systems or ‘scrubbers’
1. Upfront capital investment of US$5M per VLCC with very low visibility on returns
Installing scrubbers requires an upfront capital investment today with virtually no visibility of a return on capital. Promoters of scrubbers have used MGO as a proxy for the price of compliant fuel. Some refiners including Sinochem have recently confirmed they will sell clean compliant fuel at a price likely to be half the difference between dirty HFO and MGO. So the investment case now has half the returns being promoted and it is still 14 months before implementation and nothing suggests this price gap will not further narrow in that time.
2. Risk of pollution from scrubbers and operational concerns
Open-loop scrubbers (OLS) use seawater brought on board to remove sulphur from exhaust gases, but the wastewater produced contains a toxic cocktail of sulphuric acid constituents, polycyclic aromatic hydrocarbons and heavy metals which are pumped into the open ocean, essentially transferring pollution from air to sea.
Lack of scrutiny over technology
Future regulatory risks
Promoters of this technology argue that the open oceans dilute wastewater, rendering it harmless. But the solution to pollution is not dilution. Like plastic contamination over the years, we don’t know what the cumulative effect of this wastewater will be or how it will interact with existing seaborne pollutants, particularly in congested sea-lanes like the English Channel, Malacca Straits or Baltic Sea.
3. Implementation and enforcement regime
Breaches of current emissions standards are on the rise in their existing environmental control zones. So far flag states appear ill-equipped to ensure regulatory compliance. Installing a scrubber enables regulatory compliance with the continued use of non-compliant high sulphur fuel. But weak regulatory oversight means non-compliance in the open sea, whether through breakdown or malfeasance, cannot be effectively controlled.
Euronav wholeheartedly embraces the IMO 2020 regulations – we want to adopt the directive properly, universally and without delay. Refiners and oil producers have increasingly made clear that sufficient compliant fuel will be available. Scrubbers are therefore a loophole which makes enforcement of the sulphur ban extremely complex, difficult to enforce and likely to facilitate non-compliance.
Euronav continues to work closely with suppliers and producers on alternative mechanisms in which to capture volatility in the prices and differentials between HFO and LSFO and retains a very strong balance sheet providing optionality and flexibility to address the challenges of implementing IMO 2020.
Business, operational and technical issues impacting the crude, product and chemical tanker trades will be discussed in London at the Tanker Shipping & Trade Conference, Awards & Exhibition, 20-21 November 2018.