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IMO 2020: The Big Shipping Shake-Up

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IMO 2020 shipping Infographic

IMO 2020: The Big Shipping Shake-Up

Over 90% of all global trade takes place on our oceans.

Unfortunately, the network of 59,000 vessels powering international commerce runs on sulfur-laden bunker fuel, and resulting emissions are causing problems on dry land.

As today’s infographic by Breakwave Advisors demonstrates, new emissions regulations taking effect in 2020 will have a big impact on the world’s massive fleet of marine shipping vessels.

The Regulatory Impact

The International Maritime Organization (IMO) – the UN agency responsible for ensuring a clean, safe, and efficient global shipping industry – will be implementing new regulations that will have massive impact on maritime shipping.

The regulations, dubbed IMO 2020, will enforce a 0.5% sulfur emissions cap worldwide starting January 1, 2020 ─ a dramatic decrease from the current emissions cap of 3.5%.

Here are a few ways marine fuel will likely be affected by these regulations:

  • High-sulfur fuel oil will drop in price as the demand drops dramatically after January 1, 2020
  • Diesel, a low-sulfur fuel oil, will be in higher demand and should see a price increase
  • Refiners should also expect higher profits as refining runs increase to satisfy the new regulations

The Economic Impact

IMO 2020 will be one of the most dramatic fuel regulation changes ever implemented, with a significant impact on the global economy.

New regulations are certain to influence freight rates ─ the fees charged for delivering cargo from place to place. These rates can fluctuate depending on:

  • Time and distance between ports
  • Weight and density of the cargo
  • Freight classification
  • Mode of transport
  • Tariffs and taxes
  • Fuel costs

Rising fuel costs means rising freight rates, with much of these costs being passed to consumers.

In a full compliance scenario, we estimate the total impact to consumer wallets in 2020 could be around US$240 billion.

─ Goldman Sachs

The Environmental Impact

Not surprisingly, the world’s 59,000 transport ships, oil tankers, and cargo ships have a consequential impact on the environment.

Bunker fuel accounts for 7% of transportation oil consumption (~3.5 million barrels/day). Burning this fuel generates about 90% of all sulfur oxide and dioxide (SOx and SO2) emissions globally. In fact, the world’s 15 largest ships produce more SOx and SO2 emissions than every car combined.

These sulfur emissions can cause several harmful side effects on land ─ acid rain, smog, crop failures, and many respiratory illnesses such as lung cancer and asthma.

Changing Currents in the Shipping Sector

As IMO 2020’s implementation date nears, shippers have a few courses of action to become compliant and manage costs.

1) Switch to low-sulfur fuel

Bunker fuel use in the shipping industry was 3.5 million barrels per day in 2018, representing roughly 5% of global fuel demand.

Annual bunker fuel costs are predicted to rise by US$60 billion in 2020, a nearly 25% increase from 2019. Price increases this significant will directly impact freight rates ─ with no guarantee that fuel will always be available.

2) Slower Travel, Less Capacity

The costs of refining low-sulfur fuel will increase fuel prices. To offset this, shippers often travel at slower speeds.

For example, large ships might burn 280-300 metric tons of high-sulfur fuel oil (HSFO) a day at high speeds, but only 80-90 metric tons a day at slower speeds. Slower travel may cut costs and help reduce emissions, but it also decreases the capacity these vessels can transport due to longer travel times, which shrinks overall profit margins.

3) Refueling Detours

Adequate fuel supply will be a primary concern for shippers once IMO 2020 takes effect. Fuel shortages would cause inefficiencies and increase freight rates even more, as ships would be forced to detour to refuel more often.

4) Installing Scrubbers

A loophole of IMO 2020 is that emissions are regulated, not the actual sulfur content of fuel itself.

Rather than burning more expensive fuel, many shippers may decide to “capture” sulfur before it enters the environment by using scrubbers, devices that transfer sulfur emissions from exhaust to a disposal unit and discharges the emissions.

With IMO 2020 looming, only 1% of the global shipping fleet has been retrofitted with scrubbers. Forecasts for scrubber installations by mid-2020 run close to 5% of the current ships on the water.

There are a few reasons for such low numbers of installations. First, scrubbers are still somewhat unproven in maritime applications, so shippers are taking a “wait and see” approach. As well, even if a ship does qualify for a retrofit, cost savings won’t take effect until several years after installation. On the plus side, ships with scrubbers installed will still be able to use the existing, widely-available supply of bunker fuel.

Moving Forward

No matter which route shippers choose to take, the short-term impact is almost certainly going to mean higher freight rates for the marine shipping industry.

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Energy

Map: Oil and Gas Spills in the U.S. Since 2010

Oil and gas spills can be messy, but where are they most likely to occur? This graphic looks at oil and gas spills in the U.S. since 2010.

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Mapped: Oil and Gas Spills in the U.S. Since 2010

The recent energy crisis has highlighted the integral role that hydrocarbons play in fueling the modern world, but these fossil fuels still come with their fair share of downsides.

Aside from the obvious climate impact they bring, one other downside in particular is spills, which can lead to ecological and economic damage. These can happen due to pipeline leaks, train derailments, or other industrial disasters.

This graphic from Preyash Shah provides a visual overview of every oil and gas spill in the contiguous U.S. since 2010. Data is tracked by the U.S. government’s Pipeline and Hazardous Materials Safety Administration (PHMSA).

U.S. Oil and Gas Spills (2010‒2022)

The majority of spills that have occurred come mostly from crude oil, followed by petroleum products and gas. Note that this data covers the quantity of spills and not damages or volume.

Spills by Product TypePortion of all U.S. Spills
Crude oil51%
Petroleum products32%
Diesel14%
Gasoline13%
Others5%
Highly volatile liquids & flammable gas16%
Liquefied petroleum gas / natural gas liquids8%
Other highly volatile liquids6%
Anhydrous ammonia2%
Others3%
Carbon dioxide2%
Biofuel1%
Data figures add to 102% due to rounding errors, bolded figures represent the sum of subcategories

Crude oil, which makes up just over half of documented spills, is also one of the most costly. Contaminations can persist for years after a spill, and its impact on local mammals and waterfowl is particularly harsh.

This has been the case with the Deepwater Horizon spill (also known as the “BP oil spill”), which experts say is still causing harm in the Gulf of Mexico.

Other products with lots of spills include petroleum products such as diesel or gasoline, as well as liquefied natural gas or other volatile liquids. Interestingly, liquefied carbon dioxide can also be transported in pipelines, commonly used for carbon capture storage, but requires high pressure to maintain its state.

When looking at the location of spills, it’s clear that the South Central states have experienced the highest number of disasters. In contrast, the West Coast has had substantially less activity. However, this makes much more sense when looking at the dominant oil producing states, where Texas and surrounding neighbors reign supreme.

RankStateOil & Gas Spills (2010-2022)
1Texas1936
2Oklahoma407
3Louisiana297
4California253
5Kansas208
6Illinois181
7Wyoming155
8New Jersey128
9New Mexico114
10North Dakota98
11Indiana93
12Minnesota83
13Ohio82
14Pennsylvania71
15Iowa66
16Missouri65
17Michigan56
18Colorado55
19Mississippi53
20Montana46
21Wisconsin42
22Alabama36
23Arkansas33
24Newbraska31
25Georgia28
26Virginia27
27North Carolina24
28Kentucky21
29South Carolina19
30Alaska16
30New York16
32Tennessee15
33South Dakota14
33Washington14
35Florida13
36Maryland11
37Utah9
38Idaho8
38Oregon8
40Hawaii7
41West Virginia6
42Massachesueuts3
43Conneticut2
43Maine2
43Nevada2
43Puerto Rico2
47Arizona0
47Delaware0
47New Hampshire0
47Vermont0

Of the 4,901 spills during this period, Texas accounts for 1,936 or roughly 40% of all oil and gas spills. This is followed by Oklahoma, which has had 407 spills and is one of the largest net exporters of oil and gas in the country.

What Causes Spills?

Oil and gas spills actually have a surprisingly long history, with one of the earliest dating back to 1889, when a spill was reported on the coast between Los Angeles and San Diego.

Causes have consisted primarily of weather, natural disasters, equipment and technological malfunction, as well as human error.

However, they only became a widespread problem around the halfway mark of the 20th century, when petroleum extraction and production really began to take off. This era also saw the emergence of supertankers, which can transport half a million tons of oil but therefore make the risk of spills even costlier.

In fact, the biggest spill off U.S. waters after the Deepwater Horizon disaster is the 1989 Exxon Valdez spill in Alaska, when a tanker crashed into a reef and 11 million gallons of oil spilled into the Pacific Ocean.

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