Singapore is known as the Fine City.
Depending on your experience of the metropolis, this nickname could refer to immaculate streets, low crime, and enjoyment of the high life. Or it could allude to the punishment that awaits those who break one of the city-state’s many stringent laws.
However, from 1 January 2020, owners and masters of vessels burning high-sulphur oil in the country’s territorial waters may be facing far more than a fine.
According to the Maritime Port Authority of Singapore (MPA), captains and owners could face up to two years in Singapore prison if they are found guilty of using fuel that fails to comply with the IMO’s new sulphur emissions cap. Other penalties include a fine of up to $10,000.
This seems heavy-handed at a time when many shipowners are struggling to come to terms with the new regulations taking effect in just over 8 months’ time.
Singapore’s decrees are more influential than most
The announcement follows the MPA’s recent controversial resolution to ban the discharge of washwater from ships employing open loop scrubbers. That decision elicited widespread criticism for its lack of scientific corroboration and industry consultation.
Though Singapore was not the first harbour to have banned the discharge of scrubbing waste water, its status as the second-biggest port in the world worried industry players. Singapore’s decrees are more influential than most.
In the same way, the MPA’s threat of prison time for IMO 2020 offenders could have far-reaching consequences.
The closer we get to 1 January the clearer the picture grows of the industry’s readiness – or non-readiness – for the new sulphur oxide (SOx) regulations. Owners wishing to comply may not be able to.
Latest numbers suggest that 3,500 vessels will have marine scrubbers fitted by the end of this year, with thousands more on back order. For some time, the market was uncertain whether the IMO would honour January 2020 as the implementation date for the new SOx limits.
A leap in demand for low-sulphur fuel will create significant supply-side pressure
As a result, demand for exhaust gas scrubbers surged late and many operators have been left without their chosen solution in time for next year. Their only option will be the use of very low-sulphur fuel oil (VLSFO) until their scrubber installation is ready.
But, supply of very low-sulphur fuel oil (VLSFO) for next year remains uncertain. As such a small fraction of the world’s merchant fleet will have gas scrubbers fitted in time, the vast majority of ships will be required to run VLSFO if they wish to comply.
The IMO is confident the fuel supply will be sufficient, but many are unsure. Needing to balance the complex economics of the energy markets, refineries, too, took a cautious approach to their planning for IMO 2020. Now, not all have the technological ability to refine high volumes of cleaner fuels.
If the cost is untenable for shipowners they are more likely to risk non-compliance
At the very least, VLSFO is going to be expensive. Much more expensive than high-sulphur fuel oil (HSFO).
If the cost is untenable for shipowners they are more likely to risk non-compliance.
Estimates of non-compliant ships in January vary between 10% and 40% of the world fleet.
Many of these may be owners who are not able to access the VLSFO they require. Others will be owners who intended to burn VLSFO, but were eventually unable to afford it at the right prices.
And there will be those owners who never intended to comply in the first place, willing to pay whatever fines were headed their way.
The level of compliance is important because it will impact fuel prices. The lower the compliance with IMO 2020 the lower the demand for VLSFO, the lower the price differential between VLSFO and HSFO.
The MPA’s suggestion of a possible prison sentence is a sobering call
A low price differential increases appetite for VLSFO, which should push the price back up.
Though the result (higher VLSFO prices) may appear the same, the timing and rate of change will vary markedly from a scenario of high compliance at the outset.
Regardless of their reasons, all owners facing non-compliance next year would have been taking some solace in the knowledge that enforcement of IMO 2020 continues to be a grey issue.
Outside key economic zones and major ports, it is unclear with what rigour local port authorities can, or intend to, police ships in their waters.
To such operators the MPA’s suggestion of a possible prison sentence is a sobering call.
The authority will conduct detailed laboratory analysis of fuel samples from all ships entering port. Ships will also be required to declare their method of compliance before arrival. There is nowhere to hide.
According to a local legal opinion, owners are likely to only face jail time if there are exacerbating factors like falsification of documents or obstruction of justice.
But this is untested. Is it a chance shippers and skippers are willing to take?
Singapore has reduced compliance to a black and white issue
The motivations behind the IMO’s new sulphur cap may be meritorious. And, as with any new rule, there had to be a final implementation date, a line drawn in the regulatory sand.
But this is the biggest maritime economic event in a generation. It is complex and nuanced, and many shipowners have credible reasons for struggling to find a workable solution in time for January 2020.
In threatening these owners and their captains with time in prison, Singapore has reduced compliance to a black and white issue and added more pressure to a very difficult situation.
It is an authoritarian move that may do good for the environment, but at the expense of the maritime industry and those who serve it.