The shipping industry needs to decide quickly which form of alternative fuels it will use in place of fuel oil as more stringent regulation deadlines loom, Shell Trading's general manager of oil market analysis, Adam Ritchie, said Thursday.

In a presentation at the Singapore International Bunkering Conference Thursday, Ritchie said there was no "magic bullet" when it comes to solving the impasse on bunker fuel alternatives, and it comes down to economics and the investment cycle.

"The longer [shipowners] wait and see, the fewer choices they will have as the time nears for [even more stringent environmental regulation on bunker fuel]," he said.

The existing and upcoming changes include the International Maritime Organization's mandate, under the revised MARPOL Annex VI, that reduced the global sulfur cap to 3.5% from 4.5%, effective from January 1 this year. This is expected to be reduced to 0.5% from January 1, 2020, subject to a feasibility review to be completed no later than 2018.

Also, the limits applicable in Emission Control Areas for sulfur and particulate matter were reduced to 1% from 1.5%, from July 1, 2010, and this is being further reduced to 0.1%, effective from January 1, 2015.

The current options available in the market include scrubbers - gas exhaust cleaning systems - that are typically installed on ships, LNG, and/or distillates such as marine gasoil.

Should the IMO introduce the 0.5% global sulfur cap revision in 2020, the industry would not be able to make the fuel switch if they do not pick one alternative now and invest in it collectively, Ritchie said.

As it is, on the regional ECA front, the North America ECA kicked in on August 1, with sulfur levels allowed to be no higher than 1%.

California, which will encompass a separate ECA, is due to reduce sulfur emissions to a maximum of 0.1% by January 1, 2014.

Also at the conference, IMO's Marine Environment Protection Committee vice chairman Arsenio Dominguez said the more the IMO pushes back the implementation dates of sulfur reductions, the longer the industry will take to comply with and prepare for the impending changes.

"The IMO has also taken into account the fact that if it does not act quickly on environmental concerns, each geographical region will instead start implementing their own ECAs, as we have seen," Dominguez said.

LNG DEVELOPMENTS IN SINGAPORE

One of the most talked about alternatives during the conference was LNG, but there are still issues relating to supply and infrastructure before it becomes feasible, several industry players said at the conference.

Singapore's Maritime and Port Authority has already started addressing those issues, and will release the finalized requirements for suppliers interested in entering the LNG bunkering business, MPA's assistant chief executive of operations Captain M Segar Thursday in a presentation at SIBCON.

The finalized requirements will be released by the MPA in the first quarter of 2013, he said.

Suppliers can apply to the MPA to get licences for either LNG supply or LNG bunker craft operators, much the same as the existing licence application system for marine fuel oil and gasoil.

This allows industry players to choose which segment of the supply chain they want to be part of, Segar said.

In addition, for LNG, two or more suppliers can combine their efforts to apply for one single licence.

The key requirement for approval is that interested parties must show they have the experience and expertise to handle LNG, and also be willing to invest in the industry.

The MPA will also develop and release the technical specifications and standard operating procedures - including training crews - for LNG bunkering in the first half of 2013.

With all these in place, LNG bunkering could operationally start at the end of 2014, or early 2015, Segar said.

Availability of LNG supply is already on track, with the Singapore LNG terminal scheduled to be operational by the second quarter of 2013, Rod Duke, SLNG Commercial Operations senior vice president, said.

LNG demand for bunker use is expected to reach 24 million mt by 2025, which is 1.5% of global LNG production and 3.2% of global fuel oil bunker consumption in a base case, said Latifat Ajala, senior marine market analyst at Lloyd's Register.

In the base case, 653 LNG-fueled vessels are assumed to be newly built over 2012-2025, 4.2% of global deliveries, she said.

Source: Platts