In October 2008 the International Maritime Organization (IMO) adopted amendments to Annex VI of the MARPOL Convention which strengthened the requirements on the permitted sulphur limits for ship’s fuels. Two sets of emission and fuel quality requirements are defined by Annex VI: (1) global requirements, and (2) more stringent requirements applicable to ships in Sulphur Emission Control Areas (SECA). As of 1st July 2010, the maximum sulphur limit has been reduced to 1.00%, (from 1.50%), while from 1 January 2015, sulphur content in ships’ fuel must be below 0.1%.
Right now many carriers burn a mix of IFO (HIGH SULPHUR) 380 and LS(Low Sulphur) 380 to meet today’s emissions allowance. The percentage of LS380 is greater than IFO380 in order to meet today’s standards. The difference in price between the two ranges from $25 to $50 per ton currently.
There is a great concern that the new IMO regulation will lead to increase of the sea transport costs. If the new regulations take effect as planned (JAN 2015) the LS380 will not be able to meet the tougher emissions requirement and instead ships will have to burn (ULTRA) LOW SULPHUR MARINE GAS OIL (LSMGO) with a smaller percentage of High Sulphur IFO 380. The current price difference between LS380 and LSMGO is about $300/ tonn. This would result in approximately a $100/TEU increase over today’s BAF calculation. There is some concern that the price of LSMGO could increase due to the increased demand which would mean an even higher differential in the BAF.
At present four regions are defined as Sulphur Emission Control Area: Baltic Sea area, North Sea Area, North American Area and United States Caribbean Sea area.
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