IMO (International Maritime Organization) has set a global limit for sulphur in fuel oil used on board ships of 0.50% m/m (mass by mass) from 1 January 2020. Majority of shipping companies are planning to be compliant to reduced sulphur content of 0.50% from present 3.5%. Stricter limits on sulphur (SOx) emission are already in place in Emission Control Areas (ECA’s) in Europe and the Americas (0.10%). Till 2020 ship owners and operators could have combination of LSGO (Low sulphur Gasoil 0.10%) and HSFO (High sulphur fuel oil 3.50%) switching between marine fuels, depending on area of navigation, but from beginning of 2020, there will be increased demand for LSGO, because there are no equivalent volume of LSFO (Low sulphur fuel oil max 0.5%) in the world.

What does it mean for ship owners?
– Increased operating costs in a volatile market, because majority of expenditure for ship operation lies on bunker fuel procurement. According to IMO estimates up to 70,000 ships may be affected by the regulation.

What actions are made by ship operators and bunker suppliers?
– Some of ship owners are retrofitting vessels to use alternative fuels such as LNG, however LNG bunkering are available only in few major ports and could not cover global operations, therefore can be used by liner vessels at the moment or in particular trades;

– Some of ship owners are installing scrubber systems which allow them to continue operating on regular HSFO, but due to high investment costs of scrubbers, money in time, and ROI (return on investment) for long range, still, majority of ship operators may have preference for LSGO.

What other solutions are available for ship operators and bunker suppliers?
– Georgia with its oil terminals, is main transit point for Crude oil and Oil products from oil rich, land locked Caspian sea countries: Azerbaijan, Kazakhstan, and Turkmenistan. Fortunately, majority Crude oils (Cheleken, Turkmenistan – 0.09%; Kumkol, Kazakhstan 0.11%; Azeri Light 0.15, Shah deniz condensate 0.03%, Azerbaijan), originating from these countries have sulphur content %m much lower than 0.50%. For many years, Georgia is one of the main transit points for LSFO (Low sulphur fuel oil) of Kazakhstan, Turkmenistan, and Azerbaijan origin. Oil majors (Exxon, BP, Chevron, Itochu, ENI) and major traders of Fuel oil (Vitol, Glencore, Trafigura, Dukkar) were using corridor for transportation by rail and tankers to Georgian oil terminals (mainly in Batumi with almost 1 million m3 shore tank capacity), accumulating in larger lots, and transship to handy size (30 KT), and aframax (80 KT) tankers, for further trading to international buyers.

– Georgia has FTA (free trade agreements) with:
a) CIS countries that include: Ukraine, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkey, Azerbaijan, and Armenia;
b) AA (association agreement) with EU was signed and ratified, including DCFTA (Deep and comprehensive free trade agreement, including FTA with EFTA countries, giving Georgian origin products duty free access to markets of Iceland, Liechtenstein, Norway, and Switzerland.
c) GSP (General schemes of preference) for Georgia with US, Canada, and Japan have also been applied;
d) FTA has signed between Georgia and Peoples Republic of China;
e) Georgia is member of WTO (World Trade Organization) since 2000;
f) In terms of border control, all foreign travelers to Georgia enjoy highly accessible and service-oriented customs policies and administrative protocol. There is almost no custom duty, with 90% of goods being exempt from import tariffs, with no quantitative restrictions. The average time for customs clearance is currently about 15 minutes – one of the fastest and most efficient in the CIS.

What is conclusion and way forward?
– It is important, that global traders, which also control global bunker supply companies, make relevant arrangements, to source LSFO (low sulphur fuel oil) from Caspian sea countries for bunker industry, to help ship operators be compliant to global sulphur cap for beginning of 2020;

– There is no oil refinery in Georgia, and it is another potential to be developed. Sourcing low sulphur crude oil, refining, and re-selling oil products to global markets, using preferential trade regimes of Georgia with CIS, EU, USA, and China;

– Blending services development in Georgia is also possibility, in order to commingle LSFO with HSFO, in order to make it compliant to max. 0.50% cap.

Source: Jaba Tarimanashvili, On behalf of Batpetrol LLC