Recent comments made in Lloyd's List (Sulphur reductions to add $23.2bn to refineries' costs, June 8) once again cast considerable doubt over the economics of switching exclusively to low sulphur bunker fuels without a substantial 'offset' for many vessels in the shape of fitting exhaust gas cleaning systems.

According to Hans Meijer from the European Commission Directorate for Environment, the level of investment from refiners in meeting 0.1% sulphur standards would start at $13.6 billion in 2015 and increase to $16.7bn by 2020. Additionally, CO2 emissions from the refineries are likely to increase by about 5%, representing nearly 7m tonnes per annum, as a direct result of the increased production.

What the report also fails to mention is that much of the extra costs refiners will have to bare will be passed on to the shipowner, who in turn will ensure they are passed on to the charterer and consumer.

Recent estimates from reliable sources such as refiners association Concawe, Chemoil Energy and the International Energy Agency (IEA) predict between a 15% and 30% increase in low sulphur fuel costs when Europe's ECAs move to 1.0% in 2010, while the premium between 3.0% Sulphur bunker fuel in Rotterdam today and marine diesel oil (MDO) revealed a 50% premium.

Most recent estimates peg demand for LSFO from 2010 and 0.1% distillates from 2015 in European ECAs at around 20 million tonnes. If the additional refining costs referenced by the EC are averaged out over the five years between 2015 and 2020 at $15.15bn and are amortised over 10 years (2010 to 2020) then an investment of $1.515bn per annum, equivalent to a premium of  $75.7 per tonne of fuel sold over that period, is required. If the costs of sourcing and producing the fuel are added to that figure then it is probable that refiners will face production bills of well over $100 per tonne over a ten-year period; in line with claims made over two years ago by Concawe.

The recent Environment Canada and United States' EPA's decision to introduce 0.1% ECAs off the North American coastline from 2015 will also require an additional pool of distillates of 20m tonnes, according to Robin Meech, Managing Director of Marine and Energy Consulting. Given the fact that the US produces very little fuel oil relative to distillates and other clean fuels, the likelihood is that much of the bunker demand pool will need to be imported into North American shores from 'converted refineries' or alternatively, shipping will compete with the road transport and other demand pulls for its bunker fuel; with the additional costs that it will bring. With refinery upgrades, importation costs (at around $10 per tonne) and competition from other sectors it is feasible that the premium for bunker fuel in North America will exceed Europe.

With the EC, as reported by Meijer, considering the implementation of a Mediterranean ECA, then costs would rise still further.

The report Hans Meijer referenced in the Lloyd's List article, which will be released at next month's IMO MEPC meeting, will again highlight the need for a balanced and cost-effective approach to meeting lower sulphur regulations, where exhaust gas cleaning is utilised by shipowners to offset crippling additional fuel costs.