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The deadline is looming for the shipping industry to clean up its act on reducing air pollution, as from January vessels across the world will be required to use low-sulphur fuel oil.

The sulphur content in oil will be capped at 0.5 per cent by the International Maritime Organisation (IMO).

That is down from the current level of 3.5 per cent sulphur in fuel oil used by ships.

The global shipping industry contributes 8 per cent of the world’s carbon emissions, which is around the same size as Germany’s emissions footprint.

The new regulations are designed to halve that figure by 2050.

Is industry ready?

Viva Energy is one of four oil refineries in Australia capable of producing low-sulphur marine fuel.

The company has started manufacturing the fuel at its Geelong plant in Victoria and testing it with customers.

General manager Thys Heyns said it was too early to speculate on how much the cleaner fuel would cost.

“As a refiner in Australia, we are a very small portion of the global market,” he said.

“The international market determines what the prices are and that’s the price we can sell our product because of competitive pressure.

“Will it be more expensive than high-sulphur fuel? Yes — because there’s more processing and higher value components go into it. But it’s really unclear how much that’ll be.”

The transition to cleaner marine fuel was expected to drive up the cost of diesel in the short term.

The extent of the rise would depend on how much low-sulphur fuel was made available internationally.

Oil traders have been snapping up storage tanks in the shipping hub of Singapore, anticipating a spike in low-sulphur prices.

Shipping companies to pass on costs

Shipping lines are adopting a range of measures to comply with the IMO’s new regulations.

ANL, which operates in Australia, is modifying some of its vessels using exhaust gas cleaning systems, also known as scrubbers.

Chief operating officer Shane Walden said buying-in more expensive low-sulphur fuel would translate to higher sea freight costs globally.

“We’re expecting that the price will be somewhere between $200 and $250 a tonne higher than high-sulphur fuel,” Mr Walden said.

“In addition to that, any areas where we cannot on-board low-sulphur fuel we’ll be forced to burn diesel.

“We’re expecting the price of diesel to be even higher than the low-sulphur fuel.

Major shipping lines such as Maersk and MSC have estimated the annual cost of complying with these new requirements would be north of $2 billion a year.

Companies will recover costs via a new fuel surcharge mechanism.

The Freight and Trade Alliance said it is working with Australian regulators to validate the true cost of compliance.

The alliance said the switch to low-sulphur fuel will have a long-term impact on freight costs and how freight charges are structured.

Live cattle trade prepares

Nick Thorne is the managing director of NT Export and Livestock Services (NTXLS) and his company operates vessels Barkly Pearl and Diamantina.

He said there was a lot of uncertainty about how the switch would play-out for the industry.

“This could have impacts down the line for cattle producers, but it’s pretty early to say because it hasn’t started yet,” he said.

“I think it’ll make the charter fees for carriers more expensive, and initially there will be less places for shippers to bunker at — where ships fuel up.

He said one of his ships used marine gasoil (MJO) which would not be affected by the new low-sulphur cap, but most livestock vessels would need to make the switch.

“The Barkly uses MJO so it’s largely unaffected, but the Diamantina runs on an intermediate fuel oil,” Mr Thorne said.

“We’ll look to see if we convert her to use MJO, we’ll just have to do our sums … because the market rate for MJO, you’d imagine, will climb, and that’s going to affect our operations and expenses.”