IMO 2020 Update: September 2019

IMO 2020 is a ruling via a U.N. organization called the International Maritime Organization (IMO) that regulates global shipping. The ruling will cut the sulfur content in maritime fuel from 3.5% to 0.5%. It was first announced in 2008 that this would be going into effect. The target date of 2020 was set in 2016. There is concern about the impact this ruling will have on the cost of shipping and the impact on oil prices.

Back in July, Indonesia backed out of the agreement. Per The Loadstar, they're back on board.

The Indonesian government appears to have made a complete u-turn on its announcement last month to allow its flag-state vessels to continue to consume fuel with a 3.5% sulphur content after the IMO’s 0.5% sulphur cap comes into force on 1 January.

According to Reuters, Indonesia’s ministry of transportation has confirmed that IMO 2020 requirements will apply to “all Indonesian-flagged vessels starting 1 January 2020, both for domestic and foreign shipping”.



Freight Waves discussed the anticipated impact on diesel prices via Fitch Group:

“Fuel switching due to IMO 2020 will drive a large and sudden shift in demand for diesel in shipping, and a significant mismatch between supply and demand, and in turn price volatility appears inevitable during its early stages,” the report said.

The report does not predict how big the spike will be. (FreightWaves requested further comment from the authors of the analysis but none were available to speak.)

The Fitch report says that refineries, particularly in Asia, are undertaking upgrades or are planning to do so in order “to be IMO-compliant by no later than 2021-2022. 

The article also discusses the fact that Fitch believes that diesel demand will "soften" in the future. This driven by policy changes in Europe where diesel cars will be banned.

These two articles point out two items:

1. There is pressure on nations to stick with this agreement.

2. There will be price impacts to diesel over the short term; however, Fitch is unwilling to predict how significant the spike will be. Based on my reading of the article, short-term could last between 2 to 3 years -- this based on Fitch saying refineries will be IMO-compliant by 2021 - 2022. This might be short-term, but this impact could last a couple years, which should have a negative impact on the world economy. This with the backdrop of the current US-China trade war.

What I do need to dig into is what happens to all this high-sulfur content fuel, which will no longer be used.

We are only 4 months away from this ruling going into effect.