IMO 2020 Global Sulphur Cap Is Shipping Ready? Cape Town August 2018

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1 IMO 2020 Global Sulphur Cap Is Shipping Ready? Cape Town August 2018

2 The Voice of the Global Bunker Industry IBIA represents members globally across the entire industry value chain IBIA has representative status at the IMO and actively lobbies on the industry s behalf We participate globally in a range of committees and correspondence groups covering every aspect of bunkering Members participate in developing strategy and operational plans through IBIA Working Groups

3 Membership Profile Members in over 80 countries Across the entire industry value chain Energy Majors, Refiners, Traders and Brokers Suppliers, Ship Owners, Charterers Port Authorities, Storage Terminals, Agents Credit Reporting Companies, Lawyers, P& I Clubs Equipment manufacturers, Journalists and Consultants

4 IBIA Partners with Industry Stakeholders IMO Governments Shipping Associations ICS, OCIMF, IPIECA IHMA, Nautical Institute, IMarEST SIGTTO & SGMF Port Authorities Maritime Anti-Corruption Network

5 MARPOL Annex VI Step Changes Global Sulphur % limit changes ECA : 4.5% global limit 2006: 1.5% ECA limit 2010: 1.00% ECA limit 2012: 3.50% global limit 2015: 0.10% ECA limit 2020: 0.50% global limit

6 What has IMO done so far? Existing regulatory framework in Annex VI - in place since major revision in 2008! EGCS Guidelines first approved in 2009, updated 2015 and under review for further refinement/details Availability review provision stipulated in MARPOL Annex VI to be done by 2018 was fulfilled in 2016 Availability study for IMO meant decision on 2020 vs 2025 could be made at MEPC 70 in October 2016 IGF Code adopted June 2015, in force 1 Jan 2017 New chapter of IGF Code on Methanol under development

7 What has IMO done so far? New BDN format to allow supply of fuels exceeding global sulphur limit to ships with scrubbers adopted Guidelines for onboard sampling to verify the sulphur content of fuel in use on board ships (MEPC.1/Circ.864) A new output on additional measures to promote consistent implementation of the 0.50% global sulphur limit approved at MEPC 71 (July 2017) Work on new output started at PPR 5 (Feb 2018) MEPC 72 (April 2018) approved urgent items emanating from PPR 5

8 Enforcement Serious Challenges Ahead Outside territorial waters and ECA the compliance agency is the vessel s flag state There are serious questions as to how diligent certain flag states will be 90 There are 90 signatories to Annex VI and 35 Open Registries according to the ITF Of which 13 are not signatories to Annex VI and 22 are Open Registries account for 56% of bunker purchases This may well encourage re-flagging reducing compliance

9 nforcement Serious Challenges Ahead States that are not signatories to Annex VI have no obligation to enforce the 0.50% global cap There are 172 states within IMO hence there are about 80 non signatory states However, over 90% of global trade passes through ports in the 90 signatory states To date about 30 states (including EU, USA and Canada) have significantly enforced Annex VI This means about 60 states require port state enforcement resources and to train officers

10 Enforcement: Fines Within EU non-compliance is treated by some states as a criminal offence and as an administrative offence by others. Fines for first time offences can range from Euros 3,500 up to Euros 6,000,000. In most cases PSC can detain a vessel for non compliance

11 Carriage ban on bunker fuels with sulphur exceeding 0.50% Will make it an offence to carry fuel above 0.50%S unless approved emission abatement tech on board Simplifies enforcement as PSC no longer has to prove use, or intent to use, HS fuel in ship s bunker tanks Draft amendments to MARPOL Annex VI developed at PPR5, further refined and approved at MEPC 72 Adoption expected at MEPC 73 Likely entry into force 1 March 2020

12 Carriage Ban Implications We can buy HSFO until 1 March 2020 HSFO ban makes scrubbers pointless Will it affect carriage of HSFO as cargo? Regulation 2.9 of MARPOL Annex VI fuel oil definition: Fuel Oil means any fuel delivered to and intended for combustion purposes for propulsion or operation on board a ship, including distillate and residual fuels.

13 Amendments to MARPOL Annex VI PPR 5 agreed text for Regulation 14.1: The sulphur content of any fuel oil used or carried for use on board ships shall not exceed 0.50% m/m. (4.50% & 3.50% limits removed) IBIA/IPIECA MEPC 72 proposal: "The sulphur content of any fuel oil used on board ships or any fuel oil carried for use on board the ship shall not exceed 0.50% m/m." MEPC 72 approved text for Regulation 14.1: The sulphur content of fuel oil used or carried for use on board a ship shall not exceed 0.50% m/m.

14 Amendments to MARPOL Annex VI PPR 5 agreed text for Regulation 14.4 While ships are operating within an emission control area, the sulphur content of any fuel oil used on board ships shall not exceed 0.10% m/m. (previous 1.50% and 1.00% limits deleted) MEPC 72 approved text for Regulation 14.4: While a ship is operating within an emission control area, the sulphur content of fuel oil used on board that ship shall not exceed 0.10% m/m.

15 Amendments to MARPOL Annex VI New text for IAPP Certificate para agreed by PPR 5: For a ship without an equivalent arrangement approved in accordance with regulation 4.1 as listed in 2.6, the sulphur content of any fuel oil carried on board the ship shall not exceed 0.50% m/m as documented by bunker delivery notes. MEPC 72 approved text (IBIA/IPIECA proposal): For a ship without an equivalent arrangement approved in accordance with regulation 4.1 as listed in paragraph 2.6, the sulphur content of fuel oil carried for use on board the ship shall not exceed 0.50% m/m as documented by bunker delivery notes.

16 Implications: Some Tricky Questions Q: What happens if compliant fuel is not available? A: IMO to develop a standardized format to report nonavailability in line with Reg of Annex VI Still leaves questions/issues: Will ships have to debunker non-compliant fuel? What if the BDN says the fuel is compliant but the ship s own test results suggest otherwise? What if the fuel in use is found to be marginally above the limit due to onboard contamination? Wording of new legal requirement for the BDN prevents supply of fuel above 0.50% to ships without scrubbers

17 US Example: FONARs Ships unable to source ECA-compliant fuel required to submit Fuel Oil Non-Availability Report to the EPA and authorities at port of destination USCG checks documentation, EPA decides civil penalties May mitigate penalties but ship still gets deficiency Submitting FONARs does not let you off the hook!

18 Transition from 3,50% to 0,50%S Owners likely to hold off until last minute due to higher cost of LS fuel (and delay scrubber investments) Impossible for global refining to switch production overnight Huge logistical undertaking involving transport between refineries, storage and delivery vessels Ships will need to clean out fuel systems and may require adjustments to fuel systems and tank configurations

19 Industry fears: Sulphur disputes Majority of sulphur disputes/nops relate to ECA fuels Suppliers saw 90-95% drop in sulphur claims in 2015, NOPs down by about 80% 0.50%S limit likely to increase blending and hence risk of sulphur off-specs Analysis of NOPs suggest less than 20% would qualify as off-spec in a commercial case applying ISO 4259

20 IBIA efforts at IMO to reduce Sulphur disputes MEPC 68 (May 2015): IBIA proposed to align MARPOL Annex VI sulphur verification process with ISO 4259 PPR 4 (Jan 2017) Presentation at IMO Build understanding to prevent chaos in 2020

21 Sulphur verification procedure for in-use samples not determined yet Proposed by China at MEPC 71: Use Appendix VI for both MARPOL sample and fuel oil samples taken from ships (in-use samples) sent to PPR 5 further work Proposed in PPR 5/12/1 by IBIA different approach needed for in-use samples: Option A: Use ISO 4259 for in-use sample (accepting limit + 95% confidence) Option B: Use Appendix VI approach but applied slightly differently - accept limit x R (first stage)

22 IBIA submission: PPR 5/13/9 PROPOSAL & OBJECTIVES Fuel oil sulphur content should be defined against the most suitable specific reference test method, ISO 8754, to ensure analysis is done in a uniform and consistent way, including the test result reporting protocol, to avoid differences in application. Consistent with appendix V to MARPOL Annex VI on information to be included in the BDN which says in a footnote, that "Fuel oil shall be tested in accordance with ISO 8754:2003.

23 evelopment of draft amendments to MARPOL Annex VI Definition of Sulphur content (regulation 2) Based on PPR 5/13/9 (IBIA). New proposal by China to MEPC 72 to include both ISO 8754 and ISO sulphur test method in the definition Testing and verification procedure of in-use fuel oil samples Multiple approaches on the table including PPR 5/12/1 from IBIA (sulphur verification guidelines) or amending Appendix VI to MAPROL Annex VI

24 IMO best practice guidance FOR ASSURING THE QUALITY OF FUEL OIL USED ON BOARD SHIPS Guidance on best practice for fuel oil purchasers/users approved (MEPC 72) Guidance on best practice for fuel oil suppliers: submitted by IBIA and accepted as base for development of IMO guidance comments invited Guidance on best practice for Member States/coastal States - CG report to be presented to MEPC73

25 Vision: Reduce GHGs, phase out ASAP Levels of ambition: 1. Strengthen EEDI IMO s initial GHG Strategy 2. Reduce CO2 intensity by at least 40% by 2030; 70% by 2050 (v 2008) 3. Peak GHG ASAP and reduce total by at least 50% by 2050 (v 2008) Revised IMO GHG Strategy to be adopted in 2023

26 In Summary IMO s 2020 decision is final and there will be no delay! Compliance & Enforcement a work in progress Compliance: Most will do the right thing Enforcement: inconsistent Carriage Ban: amendment to Annex VI will give PSC increased powers likely from March 2020 Bigger challenges ahead as GHG policy aims to phase out all fossil fuels

27 Working with our members to keep the global marine fuels industry on course