Alternative Low Sulphur Compliance Options

Assessing the demand and cost of low sulphur fuel required for compliance with the IMO global 0.5% sulphur cap in 2020 is complicated by several unknowns. 

The most obvious is what the future price of crude oil will be, and for how long the reduction in bunker prices experienced since 2015 will be sustained. The cost of crude and bunker prices has gradually increased again, and many observers assume that oil prices are likely to be restored to levels closer to their 2014 peak by the time that the 2020 deadline arrives. 

But another important factor will be the take up of alternative compliance options which are permitted by MARPOL Annex VI, and for which ICS fought hard when the 2008 amendments were adopted. However, except for blue chip operators, finance from banks for retrofitting existing ships is still in very short supply. Even though 2020 is only three years away, this may still be seen as too long term for many lenders, especially given the uncertainty about the cost savings that will be achieved until it is known what the price of low sulphur fuel will actually be. 

Exhaust Gas Cleaning Systems

With respect to exhaust gas cleaning systems or ‘scrubbers’ there are still significant questions about cost, reliability and environmental performance. There are also occupational health considerations involved, with seafarers potentially being exposed to the waste residue, especially if this has to be stored on board ship, should discharge into the sea be prohibited and ships have to opt for ‘hybrid’ or ‘closed loop’ systems. 

Despite the successful conduct of trials, especially on board passenger ships and ferries, only a few hundred ships are using this technology in 2017. However, the situation could change in the run up to 2020, especially with respect to younger ships, although this will greatly depend on the price of low sulphur fuel. 

Given the current uncertainty about the price of compliant fuel in 2020, shipowners face extremely difficult investment decisions, although for many the use of scrubbers could prove to be attractive. 

The take up of scrubbers could increase significantly after 2020 once the price of compliant low sulphur fuel is known, especially if this is as high as some predict, and it can be demonstrated that the costs of retrofitting (estimated at $US1-4 million per ship) can be paid back within two or three years. If the use of scrubbers takes off in the 2020s the price of installation could go down, but this could be offset by a lack of available dry dock facilities to undertake the work. Another critical unknown is the extent to which residual marine fuel will still be widely available to support scrubber operation after 2020. 

LNG 

As well as being sulphur free, liquefied natural gas (LNG) has the attraction of producing slightly less CO2 emissions (although this has to be set against the potential dangers of methane slip, methane being a worse GHG than CO2). 
 
However, while many new ships are being fitted with dual fuel systems, and others are being constructed with the option to permit their installation at some point in the future, for many existing vessels the engineering involved may be too costly to permit retrofitting. 

The other major unknown is the extent to which the current lack of LNG infrastructure will be addressed before 2020. The European Commission was pressing for a law making it mandatory for EU ports to have LNG bunkering facilities in place, but this was watered down by EU Member States, possibly setting back the widespread use of LNG by several years. That said, LNG bunkering facilities are now starting to be established in a growing number of ports worldwide and – with some extra encouragement from governments – LNG may become the fuel of choice for more new ships in the 2020s. 

However, depending on the ship type, size and voyage length, there are significant practical design issues to be addressed, not least those relating to the complexity and cost of LNG containment systems, together with size and location of bunker tanks and their impact on cargo carrying capacity and/or the operating range of the ship. 

Adding to the uncertainly about the comparative costs of LNG and low sulphur fuel, there are also questions about the US shale gas revolution and whether this will continue to deliver relatively cheap LNG, or whether it will be halted by oil producers continuing to fight back by increasing supply (one of the reasons for lower fuel prices since 2015). 

Methanol 

In the medium term, there is also the possibility of ships using other fuels such as methanol, which for some ships might produce a clean and economically viable alternative. There have been concerns about safety but ICS believes that, following favourable trials, use of such alternatives should be permitted, with risks being identified and mitigation measures developed as a future part of the new IMO Code for Ships Using Gases or Other Low Flashpoint Fuels (IGF Code). These measures would also need to be supplemented with appropriate training for seafarers given the potential risks to ships’ crews and the need for a full understanding of how these fuels should be used.


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