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IMO 2020 warning: ‘It will not go smoothly’

  • March 4, 2019

From Lloyds List:

IMO 2020 warning: ‘It will not go smoothly’

US energy expert Daniel Yergin believes the transition to low-sulphur fuel in the ocean shipping industry is likely to be shambolic given that companies and customers are largely unprepared for the change. Presidential candidates in the US 2020 elections may be tempted to run on a platform that exempts America from IMO 2020, which may prove to be a huge vote winner once the costs of the new rules becomes apparent to a wider public

04 March 2019

Eric.Watkins@informa.com

The ‘IMO scramble’ will not be the last disruption facing the maritime industry owing to the changing global conditions taking place against an energy transition backdrop, according to one prominent energy expert

DONALD TRUMP MAY BE TEMPTED TO MAKE THE USA EXEMPT FROM IMO 2020, WHICH WOULD BE A HUGE VOTE-WINNING PLATFORM TO RUN ON IN 2020 AS AMERICANS BAULK AT THE COST OF THE IMO’S RED TAPE.

A LEADING US energy expert has given a pessimistic view of the global shipping industry’s switch to low-sulphur fuels under the International Maritime Organization rules that take effect next year.

IMO 2020 will have a disruptive and decidedly negative effect, said Daniel Yergin, founder of Cambridge Research Associates.

He told delegates at the Journal of Commerce’s TPM conference in Long Beach that IMO 2020 represents a “big change” that “won’t go smoothly”.

It was a “transformative event that creates winners and losers”.

Speaking of an “IMO scramble”, he said the change will remove 3m barrels per day of heavy oil from the market and will see the maritime industry competing with other sectors such as trucking and aviation for the middle distillates needed for compliant fuel.

All pathways to compliance will incur “significant costs”, he said, referring to the use of low-sulphur fuel, scrubbers or alternate fuels such as liquefied natural gas.

“Scrubbers are not suitable for all ships,” Mr Yergin said. “The market to acquire scrubbers also is very tight.”

While noting that “this thing is going to happen”, he said President Donald Trump could add a level of political uncertainty by withdrawing the US from the IMO 2020 agreement.

The temptation to withdraw the US from the agreement might arise in the run-up to the US presidential election in 2020, because the demand for fuel oil would create higher prices especially in areas of the country where Mr Trump will need all the votes he can get.

The “IMO scramble is going to come”, Mr Yergin said, adding that it will not be the last disruption facing the maritime industry owing to the “energy transition” now taking place around the globe.

In his keynote speech, Mr Yergin also identified the shale revolution in the US as the “biggest innovation of this century”, noting that it has enabled the country to more than double its oil production in a decade.

In 2008, he said, the US produced 5m barrels per day, while this year it will produce 13m barrels per day.

There is a “vast change in trade flows due to the shale revolution,” he said, noting that US production has minimised the impact of the Organisation of the Petroleum Exporting Countries and caused Russia and Saudi Arabia to create the Vienna Alliance in an effort to stabilise the global oil market.

The shale revolution actually began with the production of natural gas, he said, and the US is fast increasing its output, especially of LNG. The US is now a “big player” in the LNG business he said.

The increased US production has definite political overtones, especially regarding Russia. Noting that Russian natural gas is “controversial”, Mr Yergin said increasing US supplies give Europe greater “optionality” in its sourcing.

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