In 2016, IMO decided to reduce global sulfur emissions to air from shipping starting January 1st 2020, i.e. a globalization of the regionally imposed emission control areas (ECAs).
Ships will continue to be allowed to burn high sulfur residual fuels, provided they employ EGCS - exhaust gas cleaning systems, also known as scrubbers. Scrubbers use seawater to remove sulfur oxides from the exhaust gases. Other options are to utilize fuels with less than 0.5% Sulphur content, such as de-sulfurized HFO and distillates or alternative fuels with minimal sulphur content such as LNG, LPG or methanol.
Cause and effect
The option of alternative fuel oils is potentially associated with significant energy consumption at refineries – and with a net increase in production of CO2. Alternative fuels are likely to be a more viable option for smaller vessels, while scrubbers are more suitable for larger vessels - due to their increased fuel consumption and benefits of economy of scale. Higher priced fuel alternatives to HFO could resurrect slow steaming and lead to a reduction of CO2 emissions. Ships with scrubbers are likely to be operated at increased speeds - with a consequential increase in CO2 emissions. This is due to the fact that utilization of more expensive fuels shifts focus on reducing OPEX, whereas in the case of scrubbers, focus will be on securing a return on the CAPEX leading to higher fuel oil consumption.
Furthermore, utilization of diesel favors lower speeds as operational (fuel) costs are likely to be the most significant factor for the more costly distillate. Owners operating scrubbers are likely to do so at higher average speeds and so with higher average fuel consumption. Increased speeds and CO2 emissions directly work against the concept of net environmental benefit – reducing both harmful emissions and greenhouse gases (GHG).
Scrubber technology options
If the scrubber option is chosen, then there are three types to choose from, depending on the operating mode: open loop, closed loop and hybrid. Open loop scrubbers discharge the wash-water outboard and so cannot be used in ports or, of course, within ECAs. Closed loop scrubbers treat wash water with chemicals like caustic soda and can be re-used. While a hybrid scrubber can operate in either open loop or closed loop mode and so is attractive to ships trading in areas of varying alkalinity. The cost of scrubbers is proportional to the installed power of the engine and is higher for the more flexible, hybrid, systems. An additional hidden cost is the approximately 2% additional energy needed to run a scrubber.
HFO consists of the fractions of crude after the extraction of lighter and more expensive fractions. Refineries sell HFO to shipping instead of investing in the process equipment required to convert more residuals into lighter distillates. Alternatively, they can de-sulphurize residual oils to less than 0.5% sulfur (LSHFO). But both de-sulphurization and conversion of residuals are expensive. The low-sulfur induced increase in fuel prices is greater at high oil prices given the higher refinery costs. The “HFO with scrubbers” option is cheaper and more financially attractive for larger vessels.
From 2020 refineries will still look to sell the residual that remains from production (and that is currently absorbed now by shipping). If overall demand declines for traditional high sulfur HFO, and the price falls, increasing the price premium between MGO and HFO, this will reduce the time required to secure payback on scrubber installations.
The LNG option
LNG is a feasible and attractive option for new-building projects – so far mainly seen as attractive for ships on specific trades such as ferries, cruise and river vessels and, most recently, mega containerships - with regular and fixed routes allowing long term fuel supply contracts to be made. Retrofitting LNG is unlikely to be cost effective and there have been few such projects completed and when they have they have been supported by government incentive schemes.
We believe that blended LSHFO fuels will be considered a very attractive option for deeps sea shipping - and that these fuels may be cheaper than MGO. A critical parameter for the blended fuels, is the balance between aromatic and paraffinic hydrocarbons to ensure stability and good combustion characteristics. A category of blended fuels, known as “hybrid fuels” or New ECA fuels, degrade with time, contain increased catalytic fines, need to be preheated and mixing of different blends may be problematic. Although they meet the requirements for low sulfur content, their availability remains a critical issue.
A multi-fuel future
What seems certain is that post-2020 we will face a multi-fuel future. LNG is already a viable option for new-buildings. Development of liquid injection two-stroke ME-LGI Diesel engine by MAN will open the door to its cousin LPG and the non-cryogenic methanol. If availability and price of the later improve we might see it at a premium position especially due its low emission of CO2.
Given the current trends with marginal scrubber penetration, it appears that low-sulfur blended bunker fuels will be the future kings of the marine fuel market. LNG adoption remains relatively marginal in shipping - particularly for deep sea ships - and uptake of scrubbers has also been slow.
Markets are likely to see a 1-2 year period of increased volatility and shifting supply and demand volumes. The 2020 global sulfur cap pushes the initiative to refineries, placing fossil fuels in a dominant position for the immediate future. More holistic regulation, encompassing SOx, NOx, and GHG emissions could have favored fuels like LNG. But the current reality is that fuel oil remains very much the prime option -for now.
With lower-sulfur fuels looking like the easier, more practical route to compliance, owners still have some technical challenges to consider and questions of fuel quality and consistency to address. Bureau Veritas is able to help owners address these challenges.
If you can measure it – you can manage it better
Bureau Veritas is also proponent of digitalization - the new playground of innovation and performance optimization with implications for new fuel economies. Collection of huge clouds of data from various systems onboard, sensors, meters and subsequent analysis will lead to novel paths to fuel efficiency, optimized operations and improved designs.
So, while market unpredictability and the proximity of 2020 favors the option of burning low-sulfur blended bunkers, LNG installation and scrubber systems may in time be bought for less - and cost less due to standardization, technological advances, efficiency gains and increases in production. Regulatory uncertainty remains as the global cap covers only SOx emissions and neither NOx nor GHGs.
And, of course, something new will always emerge.
Bureau Veritas is the ship-owner’s partner to assist you in finding the best route to compliance and optimum performance depending on the type of your ship, economics and availability of fuel, structural and stability compatibility and providing the necessary engineering studies.
Director Technical Business Development