Ship owners should start planning for the 2020 sulphur cap, as time frame is closing rapidly says DNV GL
The next few years are bound to change a major part of the way that the shipping industry is operating, as there will be a tectonic shift in fuels used and as such, major conversion and retrofit projects on existing vessels, as well as planning for future-proofing current newbuildings, need to be set in motion by ship owners.
In an exclusive interview with Hellenic Shipping News Worldwide (www.hellenicshippingnews.com), Mr. Ioannis Chiotopoulos, Regional Manager South East Europe & Middle East with DNV GL, said that even if suppliers and yards gear up ahead of the global 0.5% sulphur cap, “we believe that there will be a few thousand scrubber installations by 2020, requiring the rest of the fleet to rely on compliant fuel”.
One the “hottest” debates in the shipping industry over the past couple of weeks has been the recent decision by the IMO, to enforce clean-fuels burning from all vessels from 2020 onwards. Can you detail us the future course of action towards the abolition of Heavy Fuel Oils?
The global 0.5% sulphur cap will be introduced in 2020, and up to 70,000 ships may be affected by the regulation according to IMO estimates.
The European Union Sulphur Directive stipulates a maximum 0.5% sulphur content for ships in all EU waters by 2020, and a 0.1% limit in ports. In certain EU countries, it should also be noted that the Water Framework Directive is putting constraints on the discharge of scrubber water. Belgium and Germany have in essence prohibited the discharge of scrubber water in most areas, severely constraining the operation of open-loop scrubbers. Other EU countries are following suit to a lesser or greater degree, with no common EU practice likely to be agreed.
Currently Hong Kong has a 0.5% sulphur limit for vessels at berth. China has recently published regulations for domestic SECA-like requirements in the sea areas outside Hong Kong/Guangzhou and Shanghai, and in the Bohai Sea. China is taking a staged approach, initially requiring maximum 0.5% sulphur content in fuel burned in key ports in these areas, gradually expanding the coverage, and culminating in applying the requirements to fuel used in the sea areas from 2019 onward. There is the possibility that the requirement will be tightened to 0.1% in 2020, and that a formal ECA application may be made to IMO.
California’s Air Resources Board (ARB) enforces a 0.1% sulphur limit within 24 nautical miles of the Californian coast. The regulation does not allow any other compliance options than low sulphur marine gas or diesel oil (DMA or DMB). A temporary research exemption may be granted allowing the use of a scrubber. The application has to be sent before entering Californian waters. A sunset review is expected in 2018 which may conclude that the ECA regulations are sufficient.
Even if suppliers and yards gear up, we believe that there will be a few thousand scrubber installations by 2020, requiring the rest of the fleet to rely on compliant fuel.
Which are the main options for compliance from a ship owner’s point of view, as from our knowledge DNV GL has issued a guide on the sulphur cap decision.
As there are a variety of options to consider, planning and implementing should start as soon as possible. HFO (3.5% S) will be available, though compliance will require the installation of exhaust gas cleaning systems. Compliant fuels and distillates will be on the market, but will be more expensive and have different operational issues. Alternative fuels, such as LNG, are and will be available, but requires investments and the price fluctuations are different from conventional fuel. Other fuels such as methanol or ethanol maybe an alternative where such fuels are available, and in the far future, a hydrogen fuel cell combined with battery technology could be viable for use in the marine industry.
There is no one-size-fits-all solution, and the best option very much depends on vessel type, size of vessel, operational patterns and which fuels are available in the short and long term. For options requiring a retrofit, it is also important to consider the complexity of installation, possible off-hire and the remaining lifetime of the ship.
There are two Scrubber technologies available today: dry and wet systems. The wet systems are by far the most predominant. Within the wet systems there are three alternatives: open loop, closed loop and a hybrid system that can operate either as a closed- or open loop system.
In addition, one can choose between multi-inlet scrubbers, allowing for exhaust from more than one emission source or a single-inlet scrubber that serve only one engine.
The main differences between a scrubber designed for the global cap of 0.5% sulphur content and the SECA restriction of 0.1% sulphur content will be the amount of water used in the cleaning process and the amount of chemicals for the closed-loop system. The scrubber tower is designed for the exhaust flow and will not be much affected by what fuel is used. For vessels operating both inside and outside ECAs, operational modes for both 0.5% and 0.1% sulphur cleaning is advised.
Switching to distillate fuel will mean a significant increase in fuel cost and may also require upgrading to the fuel treatment plant due to the significantly lower viscosity of the fuel.
Low sulphur compliant hybrid fuels are expected to be available, as refineries gear up their plants. De-sulphurisation is costly and refineries may opt to refine higher grade fuels rather than invest in de-sulphursation systems. Some stakeholders in the industry are concerned if the supply of de-sulphurised fuels will cover the demand by 2020, leaving the world fleet to rely on MGO or distillate blends.
There are also variety of emerging fuels that could be considered. The most predominant are methanol, different types of biofuels and LPG. These are considered to have very little impact on the market as a whole, but are alternatives that can be considered where supply is readily available.
Experience from the SECA areas that came into force in 2015 show that the majority of operators have opted for the fuel switch from HFO to MGO, with just a small percentage having chosen to use HFO with exhaust gas cleaning, or LNG as fuel.
Do you think that refineries will be able to support demand? Will all relative infrastructure be ready?
A transition to a higher-grade fuel will most likely result in elevated fuel costs for the industry. The cost of different grades of fuel has been closely correlated; however, such correlation should not be used for the future predictions. Increased blending will lift the demand for distillates, subsequently changing the historic correlation and most likely driving the prices upwards. As a result, we may observe a widening gap between two competing fuel solutions, with HFO (combined with scrubber) setting the bottom price and MGO representing the upper level.
During the implementation of the SECA areas the majority of operators simply switched to MGO/MDO fuels. If we follow the same pattern again, increased MGO prices are inevitable in the short term.
Nevertheless, as the production of low sulphur-blend hybrid fuels (0.5% S) is gradually introduced, we may observe the prices of distillates eventually levelling off. However, if a substantial price differential between the traditional HFO and the compliant fuels persists over time, the alternative solutions, such as scrubbers or using LNG as fuel, may prove to be the preferred solution.
For a long time now, DNV GL has been a champion of LNG as the main alternative clean fuel. Do you think that LNG as a marine fuel will be the future for the shipping industry?
With the IMO 0.5% sulphur cap, it is expected that LNG as fuel will gain a more favourable position as a marine fuel. LNG as fuel is now a technically proven solution, and LNG bunkering infrastructure is developing rapidly. While conventional oil-based fuels will remain the main fuel option for most existing vessels in the near future, the commercial opportunities of LNG are interesting mainly for newbuilds, but in some cases also for conversion projects. However, taking the leap to LNG should only be made on the basis of the best possible information and a thorough analysis.
DNV GL has contributed significantly to the evolution of LNG as ship fuel over the past 15 years. This long involvement has resulted in our in-depth and proven advisory service portfolio, and has given us a leading role in the classification of gas-fuelled ships. LNG as fuel is ready to set course, and we can help you succeed.
As per November, the global count for LNG fuelled ships as per October 2016 shows 86 ships in operation and 93 ships on order. In addition, there are already 68 LNG ready ships in operation or on order, which are designed for efficient conversion from conventional fuels to run on LNG. Currently, the car- and passenger ferries as well as offshore vessels are in the lead in terms of LNG uptake. Overall, we expect to see the highest growth in the tanker, car/passenger, cruise and container segments. Recently, we have seen some exciting projects emerge. For example, several major stakeholders have recently come together to carry out phase two of the PERFECt ship project. The Piston Engine Room Free Efficient Containership project investigates the possibility of using a combined gas and steam turbine system (COGAS) to power an ultra large container vessel (ULCS).
In the cruise industry, LNG as an alternative fuel is picking up rapidly. A number of vessels are already taking up this option. Currently, there are 11 cruise vessels on order, which will use LNG as ship fuel – that is just over ten per cent of the current LNG order book. The recent developments in the cruise industry are very important when we consider the possible impact of the current newbuilding figures. The recent orders of LNG fuelled cruise ships for instance will have a tremendous effect on the total volume of LNG sold to ships. Large cruise ships may easily have a fuel consumption of 30-50,000 tons of LNG per year, depending on their operational profile. With nine such vessels and two smaller ones on order, the demand for LNG fuel will rise by about 300,000 to 500,000 tons per year. Therefore the decisions made in the cruise sector will have a significant impact on the whole industry.
Will this process of moving over to cleaner fuels hasten demolition activity, leading more older vessels to be sold for scrap, as it won’t make financial sense for their owners to invest in expensive retrofits?
There are too many factors that are interrelated for anyone to be certain exactly what will happen. But the incoming regulations could certainly have some effect. Either on scrapping or on vessels being used in different trades or different roles. The price gap between HFO and MGO will be a prime determining factor. Previous experience shows that most owners have opted for MGO rather than scrubbers or LNG conversions. But as LNG as a ship fuel gains momentum, as we expect, then we expect that some owners will opt for newbuildings, especially if the prices that are obtainable at yards remain favourable.
Do you think that the period leading to 2020 is enough time for the industry to prepare itself accordingly, in order to prevent disruptions, or is it possible that we’ll have new delays?
2020 is rapidly approaching. Strategies and plans for how to react to the 0.5% sulphur cap need to be addressed soon in order to have the best competitive edge on the market. We recommend starting planning and acting as soon as possible, to ensure compliance in the most cost-efficient way.
DNV GL can help shipowners make the right decision by assisting with feasibility studies, cost-benefit analyses with risk assessments with regard to installation on newbuilds as well as for retrofits. DNV GL has also performed technology qualification projects for the major scrubber suppliers.
Nikos Roussanoglou, Hellenic Shipping News Worldwide