Implications of MARPOL Annex VI requirements on sulfur content in fuel oil

¶ … MARPOL Annex (VI) requirements on sulfur content of fuel oil

For several decades now, the development of global marine environmental principles has become more important than ever before the evolution of maritime law. As pollution problems have become more severe and indications of deterioration have emerged more frequently in the marine environmental system, the requirement for innovative international regulations to protect the marine environment has become the challenge of the international community in the 21st century. Marine shipping remains the largest unregulated source of oxides of nitrogen (NOx) emissions, and poses significant long-term challenges to achieving satisfactory ozone standards in coastal areas. Today, the 1973 International Convention for the Prevention of Pollution from Ships, (MARPOL) and the 1978 Protocol, which superseded the 1954 Convention for the Prevention of Pollution of the Sea by Oil and its amendments, represent the framework for the maritime industry for ozone emission control. The MARPOL Annex VI protocol is concerned with the prevention of ship-source air pollution in the form of nitrogen oxides (NOx), sulphur oxides (SOx) and other air-borne pollutants, but a number of challenges remain in terms of its effectiveness and enforceability, which are the subject of this study.

Introduction

Statement of the Problem

Purpose of Study

Review of Related Literature

Analysis and Discussion

Summary, Conclusions and Recommendations

List of Figures

Figure 1. World Marine Bunker Sales

Figure 2. Average Sulfur Content of HFO Bunker Production (in MT)

Figure 3. Potential Low Sulphur HFO Bunker Production by Re-Blending (in MT)

An Analysis of the Implications of MARPOL Annex VI Requirements on Sulfur Content of Fuel Oil

Introduction

While marine pollution problems have become more acute and signs of deterioration have appeared more frequently in the marine environmental system, the need for new international roles to protect the marine environment has emerged as a major concern for the world community of nations (Wang 334). One of the principal guiding measures in this regard is the 1973 International Convention for the Prevention of Pollution from Ships, (MARPOL) and the 1978 Protocol, which superseded the 1954 Convention for the Prevention of Pollution of the Sea by Oil and its amendments (Wang 291). This protocol was promulgated by the International Maritime Consultative Organization (named changed to International Maritime Organization, or IMO, in 1982) upon the recommendation of the United States for an expanded role, not only in maritime safety, but in marine environmental protection as well. According to Chasek, the Marine Environmental Protection Committee (MEPC) adopted a "quasi-legislative" approach by making technical changes to the 1973 International Convention for the Prevention of Pollution from Ships (MARPOL) (302).

Regarded by many observers today as being "too little, too late," MARPOL nevertheless represents the culmination of several years' worth of efforts by the international community to address the problems associated with ozone emissions from both land- and sea-based sources. The 1978 MARPOL Protocol is aimed at improving or implementing the existing conventions, the 1973 Convention for the Prevention of Pollution from Ships and the 1975 Vienna Convention for the Protection of the Ozone Layer (Chasek 56).

Annex VI of MARPOL 73/78, Regulations for prevention of Air Pollution from Ships was adopted in 1997 and finally ratified in 2004. The regulations entered into force on May 19, 2005. MARPOL Annex VI covers the following general areas:

ozone depleting substances;

nitrogen oxides (NOx);

sulphur oxides (SOx);

volatile organic compounds (VOC);

reduction in maximum sulphur content in ISO 8217 RM grade fuels specifications;

the creation of Sulphur Emission Control Areas where the maximum sulphur content is 1.5% (Brewer 7).

These regulations are mandatory for vessels of 400 tons and above in gross weight; as a result, the MARPOL Annex VI regulations have been making their impact felt throughout the maritime industry, with ship operators among those being most directly affected (Brewer 8). One of the major requirements in MARPOL Annex VI concerns the sulphur content in marine fuels. Because of the enormous costs involved, this issue has long-term ramifications for ship operations; in addition, because of its profound environmental implications, this issue also has long-term ramifications for everyone on earth. In order to meet the new requirements, both existing vessels and newly constructed craft will therefore be faced with a wide range of challenges and obstacles in ensuring that their onboard fuel treatment plants can accommodate low-sulfur bunkers, particularly during the switchover from low- to high-sulphur fuel use (and vice-versa), whenever the ship enters or leaves areas with specific fuel sulphur content specifications. Furthermore, marine fuel experts have been cautioning the maritime industry about a list of possible engine problems resulting from the prolonged consumption of low-sulphur marine fuels. In this study, the focus will be on operational challenges faced by operators and impact on the refining industry in meeting the MARPOL Annex VI requirements on sulphur contents of fuel oil.

Statement of Problem. For the past half century, the development of global marine environmental principles has assumed an increasing importance in the evolution of the law of the world's oceans. According to Murphy, McCaffrey, Patton and Allard, "Marine shipping, the largest unregulated source of oxides of nitrogen (NOx) emissions, represents a significant long-term obstacle to achieving ozone standards in coastal areas" (1). There is a growing awareness among the international community concerning the significance of shipping emissions because ships are increasing in number, size, carrying capacity and speed and fuel use is increasing proportionally.

Furthermore, the most common fuel used in large ship engines is residual heavy fuel oil; this type of fuel continues to decrease in quality, while a greater number of engines are being designed to use this lower-quality fuel. Sulphur is naturally present in fuel oil and is released as sulphur dioxide when oil is burned in engines (Consultation Paper regarding the European Commission's proposal for a Directive amending Directive 1999/32/EC as regards the sulphur content of marine fuels 3). Consequently, there is an increasing awareness of the impacts of shipping emissions on onshore air quality. Today, an estimated 85% of international shipping traffic occurs in the northern hemisphere, and 70% of that is within 400 km (240 miles) of land. Much of the shipping activity and associated emissions occur near major urban areas, many of which are already struggling with air quality problems.

Research Questions.

The following research questions will guide this study:

1. What is MARPOL and what effect has it had on emission standards to date?

2. What are the issues involved in developing more environmentally friendly marine fuels given the trends toward lower sulfur content?

3. What steps can be taken to mitigate the impact of these lower-quality marine fuels?

Research Methodology.

The proposed research methodology will be a critical review of the peer-reviewed and scholarly literature to identify answers to the above-stated research questions. Issues to be considered include:

Operational aspects of a sulphur limit on marine fuels. Low sulphur fuel oil might involve re-blending of current high sulphur fuel oil or other products. This option presents a risk for producing unstable low sulphur bunkers. The design of fuel systems and their design to handle different fuels will be considered.

Because of drastically different change-over periods, depending on fuel oil system layout and vessel trading pattern, some engines will have to operate almost entirely on low-sulphur fuel while others may actually benefit from a dual fuel system. According to Reeds, "Today's marine diesel engine is remarkably robust. It will run on almost anything, even crude oil at a pinch. In the 1980s a few unscrupulous owners were caught fuelling tankers with crude bled off from the cargo. Even the usual bunker fuel is a mucky blend of heavy oils that no-one else wants because it's so filthy" (100). These trends and the others discussed below could result in a relative distortion of vessel operating costs, with unscrupulous or "flag of convenience" carriers being able to unfairly compete with more environmentally responsible carriers, all at the detriment of the global environment. Depending on the vessel type and trading pattern (in and outside the SECA zones), this might/might not induce a requirement for multiple (dual) fuel and lube oil systems. The major issues involved are:

a. Fuel oil incompatibility;

b. Fuel change-over issues;

c. Base number - sulphur balance: Acid/Alkalinity;

d. Duration of fuel change-over - the 'Sulphur Battery.'

2.

The availability of low sulphur fuel in the future.

Review of the Literature

Background and Overview.

According to Wang, the 1973 MARPOL Convention was the result of efforts by 71 member nations of the International Conference on Marine Pollution. This protocol came into force after 15 nations ratified it on October 2, 1983, a decade after its adoption; the merchant fleets of the 15 original contracting parties, though, represented fully 50% of the world's total tonnage. These countries were: Colombia, Italy, Tunisia, Denmark, Liberia, United Kingdom, France, Norway, United States, Federal Republic of Germany, Peru, Uruguay, Greece, Sweden, and Yugoslavia (Wang 334).

The 1973 MARPOL Convention was the maritime industry's response to the new realities that existed in the global transport of oil by tankers as well as the increasing concern, as evinced by the 1972 Stockholm conference on human environment, about control and prevention of marine pollution (Wang 334). At the time, the industry sought to examine both oil pollution in general and ocean dumping as well as land-based sources of ocean pollution. According to Wang, "More significant was the rapid technological development in the design of large-sized oil tankers which required constant rule changes. By 1973 it was evident that the 1954 convention provisions were inadequate or outdated, and by then the likelihood of the 1954 convention coming into force was rather doubtful" (334).

The new protocol ultimately entered into force in January 1978. The 1973 version of MARPOL was comprised of 20 articles concerning general obligations under the convention (e.g., prohibition of violation of requirements, rules for ship inspection, enforcement, reporting on incidents involving harmful substances, and most importantly, five technical annexes or regulations on 1) oil pollution; 2) control of noxious liquid substances in bulk; 3) harmful substances carried by sea in package forms or in portable tanks or by rail; 4) pollution prevention by sewage from ships; and 5) pollution by garbage from ships (Wang 335). Today, the 1973 MARPOL convention, together with the 1978 Protocol must be legally regarded as being one instrument; however, a major change that resulted from the 1978 Protocol was the requirement that all new tankers of 20,000 deadweight tonnage and above must have segregated ballast tanks (Regulations 1 and 13 to Article 8(b) of the 1973 MARPOL convention), a scaling down from the original 70,000 deadweight tonnage (Wang 335).

Another important change in the 1978 Protocol was the adoption of the newly advanced technique of tank washing by oil or the cargo itself, known as "crude oil washing" or COW (Regulation 13b); oil and water mixture was found to be the contributor for much of the operational (intentional) pollution, and the use of COW would in the end terminate operational pollution by tankers (Wang 334).

The 1978 Protocol to the 1973 MARPOL is separate from the 1978 Protocol to the IMCOs 1974 Convention for Safety of Life at Sea (SOLAS). The 1978 Protocol to the 1974 SOLAS was approved at the 1978 Tanker Safety and Pollution Prevention Conference which was concerned with requirements for preventing oil explosions at sea, for navigational safety equipment, and the need for increased inspection of tankers as the number of oil spills increased (Richardson 5 & 5861). In the final analysis, the 1973 MARPOL convention was considered at the time to be a major international instrument for ending marine pollution of oil by ship, a view that was regarded as being overly optimistic at the time (Kern 545).

Article 211 of the 1982 LOS Convention provides the general guidelines for vessel-source pollution; for example, Article 211(3) requires the port state to notify others, through the International Maritime Organization (IMO), of requirements to be met before a vessel is permitted to enter the port state's territorial waters (Wang 335). Today, the IMO has around 160 members and is headed by a secretary-general, who serves a four-year term and oversees a Secretariat staff of approximately 300 -- one of the smallest UN agency staffs (IMO 1). All members are represented in the Assembly, the IMO's primary policy-making body, which meets once every two years. The Council, originally consisting of 24 members but subsequently increased to 32 (a 1993 resolution suggested an increased membership of 40, but it remains unratified); the Council meets twice each year and is tasked with governing the organization between Assembly sessions (IMO 1). Membership on the Council is divided among three groups: 1) the 8 countries with the "largest interest" in providing international shipping services; 2) the 8 countries with the largest interest in providing international seaborne trade; and 3) 16 countries with a "special interest" in maritime transport, selected to ensure equitable geographic representation; safety proposals are submitted to the Assembly by the Maritime Safety Committee, which meets once a year (IMO 2).

There are a number of other committees and subcommittees dealing with specific issues, such as the environment, legal issues, the transport of dangerous goods, radio communications, fire protection, ship design and equipment, lifesaving appliances, and cargoes and containers. The IMO's Global Maritime Distress and Safety System, an integrated communications system using satellites and terrestrial radio communications to provide aid to ships in distress even in cases where the crew is unable to send a manual distress signal, was established in 1992 and became fully operational in 1999 (IMO 3-4).

The efforts to provide controls over pollution of the sea from various sources remains difficult to negotiate, but there are several accords on marine pollution that date back to the 1954 Convention for the Prevention of Pollution of the Seas by Oil and MARPOL, the Marine Pollution Convention (Stone 91). The MARPOL Convention is the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental causes; the agreement today is a combination of two treaties adopted in 1973 and 1978 respectively and updated by amendments through the years (MARPOL 73/78 2).

The International Convention for the Prevention of Pollution from Ships (MARPOL) was adopted on November 2, 1973 at IMO and addressed the issues of pollution by oil, chemicals, harmful substances in packaged form, sewage and garbage; the Protocol of 1978 relating to the 1973 International Convention for the Prevention of Pollution from Ships (1978 MARPOL Protocol) was adopted at a Conference on Tanker Safety and Pollution Prevention in February 1978 held in response to a spate of tanker accidents in 1976-1977. (Measures relating to tanker design and operation were also incorporated into a Protocol of 1978 relating to the 1974 Convention on the Safety of Life at Sea, 1974) (MARPOL 73/78 2).

As the 1973 MARPOL Convention had not yet entered into force, the 1978 MARPOL Protocol absorbed the parent Convention. The combined instrument is generally known to as the International Convention for the Prevention of Marine Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto (MARPOL 73/78), and it entered into force on 2 October 1983 (Annexes I and II) (MARPOL 73/78 2). The Convention includes regulations aimed at preventing and minimizing pollution from ships - both accidental pollution and that from routine operations; the protocol currently includes six technical Annexes:

Annex I Regulations for the Prevention of Pollution by Oil

Annex II Regulations for the Control of Pollution by Noxious Liquid Substances in Bulk

Annex III Prevention of Pollution by Harmful Substances Carried by Sea in Packaged Form

Annex IV Prevention of Pollution by Sewage from Ships

Annex V Prevention of Pollution by Garbage from Ships

Annex VI Prevention of Air Pollution from Ships (entry into force 19 May 2005)

States Parties must accept Annexes I and II, but the other Annexes are voluntary (MARPOL 73/78 3).

MARPOL became effective on October 2, 1983. As of April 30, 2000, 110 countries had become parties to the Convention and Annexes I and II, representing 94.23% of world tonnage; of the three "optional" annexes, Annex III (Regulations for the Prevention of Pollution by Harmful Substances Carried by Sea in Packaged Form, or in Freight Containers, Portable Tanks or Road and Rail Tank Wagons) entered into force on July 1, 1992 and has 93 parties; Annex IV (Regulations for the Prevention of Pollution by Sewage from Ships) became effective this year. Annex V (Regulations for the Prevention of Pollution by Garbage from Ships) entered into force on 31 December 1988 and has 96 parties (Chasek 67).

In September 1997, the Convention was amended to specify intact stability criteria for double hull tankers. Another amendment designates the north-west European waters a "special area"; these amendments entered into force in February 1999.

At the time, the signatories to the agreement also adopted the Protocol of 1997 (Annex VI) on Regulations for the Prevention of Air Pollution from Ships to the Convention. The rules established limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibited deliberate emissions of ozone-depleting substances. The Protocol entered into force 12 months after being accepted by at least 15 states with not less than 50% of world merchant shipping tonnage (Chasek 67).

Operational Aspects of a Sulphur Limit on Marine Fuels.

As noted above, one of the major requirements in Marpol Annex VI involves sulphur content in marine fuels that has long-term implications for ship operations. The sulfur content of marine fuels has been a major source of concern to environmentalists; indeed, whatever the cause, the global environment is suffering and many scientists blame mankind. For example, according to Mulvaney (1998), "Ours is a water planet. The ocean covers 71% of the surface area of the globe, and constitutes over 90% of all habitable space on Earth. Its total volume is around 300 million cubic miles and its weight is approximately 1.3 million million tons" (29). The enormity of the world's oceans caused some scientists in the past to believe that nothing mankind did could impact them in any substantive way. In fact, 40 years ago, one scientist suggested that "It may be rash to put any limit on the mischief of which man is capable, but it would seem that those 100 and more million cubic miles of water... is the great matrix that man can hardly sully and cannot appreciably despoil" (Mulvaney 29). These early estimates have been proven wrong in a dramatic fashion. In his essay, "Fuelling the fire," Jon Reeds (2000) points out that, "To halt the havoc that flying and shipping are inflicting on our environment, action must be based on what the planet needs, not what business and the consumer want" (100). The efforts to achieve ratification of the Kyoto Protocol have achieved at least some type of international consensus about the type of action that is required today. In this regard, Reeds reports that:

Nowhere do globalisation and sustainability clash more acutely than in international trade, for aviation and shipping are globalisation's vital arteries. Western companies are only able to sack their staff and replace them with lower paid workers in Chinese plants if their managers can visit the factories easily and their goods can be shipped out at low cost. Today it's cheaper to move a ton of goods from China to Britain than from London to Edinburgh. Often the most expensive part of hauling goods from Asia to Europe is the final stretch by lorry. Globalisers scored a major victory over sustainability at Kyoto by excluding emissions from international air traffic and merchant shipping from the final protocol. In place of action, the parties decided to pursue limitation or reduction of greenhouse emissions through the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO). (Reeds 100).

Unfortunately, the UN agency has been slow to act, constrained in large part by the need to accommodate both the most affluent as well the poorest member states as they pursue viable solutions to this growing problem. According to the European Commission Study, "Advice on Impact of Reduction in Sulfur Content of Marine Fuels in the EU" (2002), the two main "oil fuel" classifications currently in use in the maritime industry are 1) distillates and 2) residual fuel oils. Marine distillates are further divided into two broad types: 1) marine gas oil (MGO) and 2) marine diesel oil (MDO). Marine gas oils are those typically used in the small, more highly rated diesel engines used many types of ships; by contrast, fuel oil (also known as heavy fuel oil [HFO] or 'residual fuel oil'), are the heaviest viscosity oil fuels. The most commonly used heavy fuel oils used for marine purposes are the Intermediate Fuel Oils, IFO180 and IFO380; these are fuel oils with a viscosity of 180 and 380 centistokes at 50°C. In sharp contrast to distillates, heavy fuel oils generally require pre-heating facilities (Advice on Impact 5).

According to Reeds, the responsibility for taking action on aviation bunker fuels ultimately fell to the ICAO, established in 1944 at a time when aviation needed protection. Reeds reports that, "The Chicago Convention enshrined a tax-free regime for aircraft fuel, so the only way it could be imposed was by bilateral agreements between countries; in fact, fully 97 per cent of them continue to prohibit fuel taxes today" (100). This effort required almost 25 years before the ICAO launched its first initiative towards considering the impact on the environment, when it first began to investigate aircraft noise; the reference to ICAO served as the catalyst for one important initiative, just as the limited data on aircraft emissions, that the Inter-governmental Panel on Climate Change (IPCC) was requested to review. The conclusions released by this agency clearly showed that inaction is no longer a viable option (Reeds 100).

According to Reeds, "It takes an awful lot of fossil fuel to suspend 350 tons of aircraft 12 kilometres above the ground for several hours. It needs well over two tons of kerosene to fly one person across the Atlantic and back, more than the average British car burns in a year" (100). The IPCC also determined that aircraft are responsible for the release about 600 million tons of carbon dioxide, or over two per cent of humankind's emissions of the gas. The panel also acknowledged that airplanes' other emissions may also be contributing to warming. The science involved in this issue is controversial; however, the author suggests that it is probably that emissions of oxides of nitrogen (NOx) and water vapour at altitude contribute. It may be too that the 'contrails' aircraft leave like snails across the sky increase levels of cirrus cloud, another probable source of warming. These may well push aviation's contribution to the amount of warming to around 3.5 per cent (Reeds 100). According to this author, "While governments are at least talking about ways to reduce road traffic, civil aviation is growing fast. It's doubling every 15 years and, unchecked, by 2050 could account for anywhere between four and 15 per cent of greenhouse emissions -- and that assumes that there will be major improvements in fuel and operational efficiency before then" (Reeds 100). Unfortunately, enormous constraints to significant progress remain in the form of pollution credits because developed nations can purchase emission credits from poorer countries; for a relatively minor investment, these companies can continue to do business as usual, thereby forcing smaller competitors out of business in the process. Not surprisingly, developing nations remain dubious about these protocols but their influence is small compared to the major players in the global market. According to Reeds, the inability to achieve adequate controls on aviation emissions at the Kyoto meeting and the sluggishness of the industry's response served to at least compel action from the European Union. In 2003, the EU threatened to impose its own emission charge on aviation bunker fuels in Europe if the international community failed to reach a consensus by 2004 (Reeds 100).

If the aviation industry response to these issues appears sluggish, it is still light-years ahead of merchant shipping. According to Reeds:

mere 12 months after Kyoto, the IMO agreed to study greenhouse emissions and look at technical, operational and market-based solutions. A consortium of Norwegian and U.S. researchers is completing a report for the IMO to consider in the autumn and it hopes to use this as the basis of a strategy. Environmentalists have done little to roughen the waters for shipping, seen as a very fuel-efficient mode of transport. Yet it adds about another three per cent to the world's carbon dioxide emissions and it too is growing fast -- around 70 per cent in the last 15 years. A new generation of bigger container ships will stack it up further (Reeds 100).

Clearly, the maritime industry is face with some profound challenges as it seeks to balance the need to identify less expensive fuels to meet the needs of a growing global marketplace while simultaneously addressing the emission problems related to these lower-cost fuels; these issues are discussed further in the chapter below.

Analysis and Discussion

As noted above, this study employs a review of the scholarly text, refereed journal articles, known and reliable organizational and governmental Web sites, as well as university and public libraries to answer the guiding research questions. The analysis of environmental standards shows that they generally fall into three categories: 1) factor, 2) output, and 3) bureaucratic, which are discussed further below (Stone 13). Factor standards constrain the selection of input. For example, one way to safeguard air quality is to issue regulations that require utilities to install in their smokestacks a certain quality of scrubbing equipment, or to use coal whose sulfur content does not exceed some specified level per ton.

Output standards allow the managers to retain discretion over the various factors that go into the production process so long as they do not exceed specified limits on what comes out. For example, under an output standard the regulated firms are allowed to use whatever grade of fuel they want to buy and run their plants with whatever technology they prefer, so long as the output through the chimneys into the outside world do not surpass x pounds of restricted material per day.

Factor standards are in some circumstances easier to monitor; for example, there are so many points of entry of pollutants that the control might have to assume the form of constraints on the use of factors, for example, carbon, which closely correlate, for reasons of chemistry, with the undesired output irrespective of technology. But output standards generally allow more flexibility than the factor standards, which impose uniformity across an entire industry insensitive to differences among firms in terms of their companion technology, and the like. The output standards are also less likely to stultify innovative ways to produce the desired result.

Bureaucratic standards encroach on managerial discretion over organizational and bureaucratic variables. For example, if a nuclear power plant experiences certain failures or defects, the data to be collected and the pathway for that information are not left to the Identifying and implementing effective environmental standards environment is perhaps even more challenging in the merchant shipping world; in fact, the industry's pollution convention, MARPOL, dates back to 1973, but action on air pollution required until 1997 when limits were placed on NOx, oxides of sulphur (SOx) and ozone depleting substances.

These initiatives were clearly required at the time with growing indications of pollution being evident in virtually all coastal areas around the world. This disturbing trend was the direct result of the costs involved in marine fuels. In 2001, total international bunker sales reached 136 million tons (MT); this level represented a 3.4% decline from 2000 due primarily to the fall in sales of heavy fuel oil. Concomitantly, the distillate bunker fuel market recovered to reach 28.4 MT, representing about 20% of total bunker fuel sales. To date, Europe and Asia are the main world consumers with 48 and 42 MT respectively as shown in Figure 1 below.

Figure 1. World Marine Bunker Sales.

Source: Sabathier, Queriat and Brun 5.

Further complicating the picture is the fact that merchant ships are frequently owned by a convoluted series of holding companies, making regulatory enforcement problematic if not impossible. According to Reeds, not all so-called "flags of convenience" are as bad as they are portrayed; however, some of them clearly deserve their reputation. In terms of its environmental impact, these vessels represent the world's major source of SOx pollution, and there are ways of deceiving regulators:

It's possible for ships to carry tanks of light gas oil alongside the heavy stuff to fool the regulators and provide a reliable source of power when maneuvering inshore, where breakdowns could be catastrophic, MARPOL's 1997 measures hardly covered it in glory. It set a 4.5 per cent limit on sulphur content, not exactly impressive in a world where the average figure is three per cent. It even prompted the International Chamber of Shipping to demand a lower figure, as some regions now plan to create emission control areas where 1.5 per cent sulphur limits may be imposed. The North Sea and the Baltic are examples. A study by Carnegie Mellon University last year showed ships are the world's worst polluters per ton of fuel. It's long been known that SOx pollution can slightly reduce the greenhouse effect and ships are emitting so much sulphur in the north Atlantic, they may be having an effect -- the acid rain response to global warming (Reeds 100).

In reality, this is the problem facing the international community today: the impact of globalization on the world's economy has been the driving force behind these levels of fuel expenditures in an effort to keep up with a growing consumer market. The money involved makes any substantive changes enormously difficult. For example, while a number of industry leaders including mining and natural gas, are advocating increased controls over sulfur dioxide emissions to reduce acid rain and other adverse effects on the environment; some, such as the steel industry, are challenging the need for these increased controls in view of the enormous costs to their particular operations (Wenner 14). According to this author, the Environmental Defense Fund (EDF) has been seeking improvements in this area for several decades; for example, during the 1980s research on acid rain and argued for increasing limits on sulfur oxides and other emissions under the Clean Air Act (CAA). "Representatives of EDF have testified before Congress each time the CAA was under review, and they have also argued before state legislatures including Wisconsin's and Massachusetts', to increase state control over sulfur oxides" (Wenner 115). The results of an EDF study of Chesapeake Bay showed that nitrates in acid rain were responsible for the algae blooms that deplete oxygen in seawater, suffocating sea life in the process (Wenner 115).

With 95 per cent of the world's international trade being transported by ship, the shipping industry is one of the most important players in global trade. According to Pappos and Skjolsvik (2002), marine fuels represent approximately 20 per cent of total fuel oil demand; therefore, the development of this market represents an important has important implications for the refining industry (3).

The analysis on the option to increase the low sulphur fuel oil supply to the bunker market:

Re-blending from the current HSFO market;

Switch to a lower sulphur crude diet;

Invest in Residue Desulphurization (RDS); and,

Redirect the low sulphur fuel oil destined for inland markets (Pappos & Skjolsvik 5).

A limited supply of lower sulphur content HFO could be available by re-blending current HSFO with MDO, or other components. This option presents a risk for producing unstable LSFO bunkers. Dilution of a thermally cracked residue with too high concentration of a paraffinic diluent ("cutter-stock") such as gas oil could result in an unstable fuel. As a result, it is necessary to ensure that the aromaticity of any diluent is sufficiently high to keep the asphaltenes dispersed. The addition of catalytically cracked cycle oils is one way of doing this, and so providing an adequate stability reserve (Pappos & Skjolsvik 5-6). Assuming blending is properly performed (e.g., the right components from selected grades, and in correct order), the Beicip-Franlab report suggests that approximately 4 MT of 1.5% S. bunkers could be available in North Europe and about 0.7 MT in the south; the sulphur content of the remaining HSFO would increase to about 3.4 wt% in the North and 3.2 wt% in the South (Pappos & Skjolsvik 6).

This alternative may be able to address a small part of the market in SECA's (Sulphur Emission Control Areas) such as the Baltic and North Sea where max. Sulphur 1.5% is required today; however, in general terms this alternative is a nonviable option because it does not address the fundamental issues involved. These authors also caution that uncontrolled blending with feedstocks available in the market may result in unforeseen problems to the shipping due to unstable products. "Stability is one of the critical parameters for handling fuel oil on board the vessels. Switch to a lower sulphur crude diet. If we consider three different crude oils, Brent blend, Iranian Heavy and Arabian light, it is evident that there is a clear diversity in quality and yield, which will affect the refineries processing and output" (Pappos & Skjolsvik 5-6).

In April 2002, Beicip-Franlab provided an analysis of the marine heavy fuel oil supply in Europe based on the 1998 Concawe survey on the distribution of sulphur in the heavy bunker fuel oil produced in the main European Refineries, DNV reports and Sabatheir et al.'s estimates of recent trends in the development of this market. The following was the result of this analysis.

Figure 2. Average Sulfur Content of HFO Bunker Production (in MT).

Source: Sabathier et al. 8.

Based on this table, Beicip-Franlab report derived the potential production of low sulphur fuel oil assuming blending of different sulphur content cuts.

Figure 3. Potential Low Sulphur HFO Bunker Production by Re-Blending (in MT).

Source: Sabathier et al. 8.

Based on the foregoing analysis, the authors report that approximately 4 MT of 1.5%S bunkers could be made available (without investment in desulphurisation facilities) in North Europe and about 0.7 MT in the South. Figures for 1%S bunkers are 1.2 MT in North Europe and 0.4 MT in the South.

Invest in Residue Desulphurisation (RDS). Refinery processes for desulphurisation of HSFO are likely to be very expensive with each plant costing well in excess of $200 million (Pappos & Skjolsvik 6). At such levels, it is highly unlikely that the refining industry would be prepared to consider investments to support a low sulphur bunker business, absent the confidence in a significant and sustainable price increase for this higher quality product. According to these authors, it remains very difficult to indicate what the additional investment cost will be (Pappos & Skjolsvik 6). Refinery processes for desulphurisation of residue remain relatively expensive because of the nature of the feedstock involved; the costs associated with these processes have historically been too high to justify construction of a plant devoted strictly to converting high sulphur residue to low sulphur residue. In fact, the price differential between high and low sulphur fuel oil has never been sufficient to support such an investment (Advice on the Costs to Fuel Producers 54).

The enforcement of the directive 1999/32/EC from January 1st 2003 represents a significant and ever-increasing demand for LSFO 1% S. max. And the contrary for HSFO. On the basis of industry estimates for 2005, this will represent a deficit of about 8-10 MT LSFO, and a surplus of 12 MT for HSFO. This unbalance will be more significant for the Southern and Mediterranean refineries. In N.W.E and Nordic countries is being today produced a significant amount of LSFO, mainly diverted to the local ferry segment as bunkers, and exported to counties where they need LSFO for the utilities (Pappos & Skjolsvik 7). This level has already been allocated, and if the maritime industry continues to desire this product, it will be in direct competition with the inland market. The primary producers of LSFO are the refineries in Scandinavia, where the logistics for using North Sea crude are superior; however the volume of this LSFO gone to the bunker market is linked up to long-term contracts with the ferry companies, and therefore are not available for open spot bunker market (Pappos & Skjolsvik 7).