IMO Fuel Regulations 2020: from headache to migraine for ship owners; IMO sulfur cap rules spark increasing appetite for LNG

IMO Fuel Regulations 2020: from headache to migraine for ship owners
17/08/2018 https://www.hellenicshippingnews.com/imo-fuel-regulations-2020-from-head...

BIMCO, the Clean Shipping Coalition, Cruise Lines International Association, Friends of the Earth US, International Chamber of Shipping, International Parcel Tankers’ Association, INTERTANKO, Pacific Environment, World Shipping Council, and WWF Global Arctic Programme have jointly released a statement calling for the prohibition of the carriage of non-compliant fuel when the IMO’s global 0.5 per cent sulphur cap takes effect in 2020.

The IMO says that there is no reason for a ship to be carrying non-compliant fuels unless it has an approved emissions abatement system installed. A debate at the IMO in London is scheduled for February to decide whether to implement the non-compliant carriage prohibition.

Such a prohibition would overturn the current state of regulation issued by the US Environmental Protection Agency in 2012 which will allow ship owners to use non-compliant fuel oil without an emissions abatement system if no compliant fuel oil is available at a bunkering port. The ship owner may then issue a FONAR or Fuel Oil Non Availability Report. Some in the industry had assumed that the FONAR could be used world-wide on the basis that the oil companies are unable to guarantee the availability of compliant fuel at each and every bunker station.

Presumably the associated worthies undersigning the joint statement wish to ensure a level playing field so that ship owner A cannot undercut ship owner B by using non-compliant cheaper heavy fuel oil on a voyage.

But, unless compliant fuel is available at every port – and bunker suppliers fear it won’t be – the industry has less than two years to decide whether to fit scrubbers and to implement that decision. If an owner does decide to fit scrubbers, then the manufacturer, ship yard and finance all must be identified, the system must be tested and the extracted sulphur must be disposed of at an as yet undetermined location. So far, fewer than one thousand ships world-wide employ scrubbers, out of a global fleet of approximately eighty thousand ships.

Several tanker owners have advised me that they intend to fit scrubbers because the economics will work basis an assumption on how much cheaper non-compliant fuel oil will be compared to low-sulphur heavy fuel oil, MGO or other compliant alternative fuels. They have, I assume, identified and booked the systems, ship yards, and dates to fit the scrubbers as well as obtaining a guaranteed supply of fuel oil from a preferred supplier.

If the prohibition goes ahead, there could be a rush to fit emissions abatement systems, but not everyone will be able to retrofit their ships in time. Several owners have told me that they cannot see the sense in scrubbers and will renew their fleets instead. What will happen to the rump of the fleet that is left unable to comply with the new regulations? If, as I believe, charterparties will be adjusted to insist on compliance, many ships will be unable to find cargos and will fall out of use. The scrap yards could be inundated.

The shipyards could also be inundated as owners seek to renew fleets. When the 2010 single hull tanker phase out was approaching, owners were lucky enough to have enjoyed several years of profitability and in 2007 over 700 new double hull tankers were ordered for delivery before 2010. As you will remember, the cost of a VLCC ballooned to over USD 140 Mn. Many of these double hull vessels delivered just in time for the global economic crash. It is quite possible that many of them are still in negative equity compared to the mortgages advanced to build them.

The current tanker newbuilding orderbook appears to reflect a similar scenario, though neither the freight markets nor the banks are as supportive as they were a decade ago. Building a new vessel in this economic environment is a risk, though a number of owners have already been prepared to take that risk.

If you are a tanker owner, you have little time left to decide what to do if you want to implement your decision before 2020. If you are an investor or a lender, you need to understand the risks these regulatory changes pose to your investment or exposure. The industry needs clarity from the regulators…and soon, because this headache is becoming a migraine.

Source: Mark Williams, Managing Partner at Affinity Research LLP

IMO sulfur cap rules spark increasing appetite for LNG
16 August 2018

Tough new rules on marine fuel are forcing shipowners to explore LNG as a cleaner alternative and ports such as Gibraltar are preparing to offer upgraded refuelling facilities in the shipping industry’s biggest shake-up in decades, reports Reuters.

From 2020, International Maritime Organisation (IMO) rules will ban ships from using fuels with a sulfur content above 0.5%, compared with 3.5% now, unless they are equipped to clean up sulfur emissions. To meet the sulfur rules in 2020, shipping companies can use low-sulfur fuel, install a scrubber and continue to use heavy fuel oil, or switch to LNG.

Using LNG to power ships instead of heavy fuel oil or the lighter marine gasoil can reduce polluting emissions of nitrogen oxides and sulfur oxides by 90 to 95%, according to industry estimates. Analysts at Swiss bank UBS estimate that the green shipping market could be worth at least US$250 billion over the next five years.

The British territory of Gibraltar is in the process of launching an LNG-fuelled power station whose accompanying storage tanks will also be able to be used to refuel cargo ships via barges. Gibraltar already supplies the most marine fuel of any port in the Mediterranean and aims to do the same with LNG, said Manuel Tirado, Chief Executive of the Gibraltar Port Authority (GPA).

“The GPA’s aim is to be the number one LNG bunker port in the Med, however, this is something that will not happen overnight,” he told Reuters.

The shipping industry is under pressure to cut its emissions of CO2 by at least 50% by mid-century from 2008 levels, after the IMO agreed on a target in April after years of debate. Although still a fossil fuel, LNG emits 10 to 20% less CO2 than even low-sulfur fuel oil.

With rising oil prices over the past year, the appetite for LNG has grown in the cruise ship industry as well as in the container, cargo and tanker sectors. There are currently 125 ships around the world using LNG, according to ship certification experts DNV GL, with between 400 to 600 expected to be delivered by 2020. However that is a still small fraction of a world fleet of more than 60 000 commercial ships.

“Over the last year or so there is a growing consensus among shipowners that LNG is a reasonable next step. It is gaining traction,” said Martin Wold, a senior consultant at DNV GL.

But the transition to LNG will take time, with low-sulfur oil-based fuels also used to replace heavy oil. By 2050, DNV GL forecasts that only 47% of energy for shipping will come from oil-based fuels. Gas fuels will account for 32%, and the rest will be provided by carbon-neutral energy sources, such as biofuels and electricity.

One of the challenges in using LNG to power ships has been the investment needed to build the required refuelling facilities. In addition, commercial vessels powered by LNG cost around US$5 million more than regular ships. Retrofitting is also costly as existing ships require space to install much bigger fuel tanks to keep the super-cooled gas from evaporating.

In Gibraltar, the construction of the new LNG power plant by Royal Dutch Shell will help to create some of the required ship refuelling infrastructure.

“The LNG for the power plant will be used solely for the power plant. However, the same marine infrastructure that provides the LNG for the power plant will also be able to be utilised to supply LNG to vessels. The current focus is to deliver LNG by barge,” said Tirado.

Tirado added that authorities in Gibraltar were working on a legal framework that would allow ships to be refuelled with LNG in the near future.

Malta is studying the provision of LNG refuelling facilities at its ports and other places such as Barcelona are working on providing LNG bunkering. Zeebrugge and Rotterdam are already supplying LNG via barges.

Elsewhere, several LNG bunkering vessels, from which merchant ships can refuel, have been delivered to operate in locations such as the Amsterdam, Rotterdam, Antwerp region, the North Sea, the Baltic Sea and the coast of Florida.

“We are reaching a tipping point where shipowners are starting to commit to LNG-fired ships at scale,” said Maarten Wetselaar, Head of Integrated Gas and New Energies at Shell.

French container shipping line CMA CGM, the fourth biggest in the world, has said it has ordered nine mega vessels for delivery from 2020 which will be powered by LNG, one of several options it is pursuing.

“Replacing the entire fleet with long-term solutions will take years so the group is committed to implement several solutions during this period,” CMA CGM said.