Which way to go in intra-Asia? With LNG, scrubbers or hybrid low-sulphur gasoil blends
 For many, if not most ocean carriers plying the intra-Asia trade, the decision of what fuel to use before January's United Nations imposition of a worldwide virtual sulphur ban is becoming clearer given the unique cost structures involved.
From January 1, 2020, the IMO will require shipowners to either use fuel with a sulphur content of 0.5 per cent or less - down from 3.5 per cent today - by using low-sulphur gasoil blends, liquefied natural gas (LNG) or scrubbers.
Being in the highest volume and least lucrative of the world's major trades, intra-Asian carriers must keep costs down if there is to be the slightest chance of profitably. In this, there appears to be one choice of three available for those dedicated to the trade lane as opposed to others, which can treat it as a loss leader extension of their principal east-west trades.
Of the three choices the least talked about, hybrid gasoil blends, is the one that will undoubtedly win the hearts and minds of the true intra-Asian trader. That's because hybrid gasoil blends appear - at this point in time, anyway - to be the cheapest available.
The good news is that many expect rates will increase sharply because of the IMO 2020 mandate that ships operating globally use low-sulphur fuel or clean engine exhaust with scrubbers next January. That's true enough for the long distance runners of Asia-Europe and transpacific trades.
Moreover, the US economy that sustains the transpacific trade is expected to remain strong this year, said IHS Markit economist Nariman Behravesh, who expects American GDP to rise 2.4 per cent in 2019.
Against this good news comes a gloomy outlook for Asia-Europe in 2019, a gloom likely to be extended if consumer behaviour does not change dramatically from that experienced in the past four years with the exception of 2017. Demand growth on the Far East to Europe trade lane: 2015: down 3.2 per cent; 2016: up 2.9 per cent; 2017 up 4.5 per cent; and 2018: down to 2.2 per cent growth.
Confusing things is the battle among suppliers and their partisans of the rival fuels. First, there have been moves by ports in Japan, Singapore and the UAE to make the lives of those choosing scrubbers more difficult. This is has sparked a counter attack by a scrubber lobby called the Clean Shipping Alliance (CSA), which has charged these ports with "peddling fake news" to justify the banning of the scrubber's open loop discharge of waste water without costly sanitation procedures.
Said CSA lobby chief Ian Adams: "Ports have the right to mandate their own requirements, but to link these decisions to sensationalist statements in the scrubber debate, without any reference to scientific data, is unfounded, unreasonable and perpetuates the spread of incorrect information,"
Then comes the LNG lobby, SEA\LNG, a "multi-sector industry coalition aiming to speed up the widespread adoption of liquefied natural gas as a marine shipping fuel". Its key argument is that it believes "LNG is a viable pathway to meet the IMO's far off 2050 greenhouse gas targets".
Said SEA\LNG chief Peter Keller: "LNG, in combination with efficiency measures being developed for new ships in response to the IMO's Energy Efficiency Design Index, will provide a way of meeting the IMO's target of a 40 per cent decrease in greenhouse gas targets by 2030 for international shipping."
While these options would obviate the need for low-sulphur fuels, or the need to devise new product specifications of fuel oil blends to ensure IMO compliance, they also have towering disadvantages, the biggest being expense.
For example, a Seabury consultancy report determined what the additional cost would be for an 8,500-TEU ship using blended cleaner marine gas oil instead of the residual fuel in use today would likely be US$200 per ton. For the 8,500-TEU ship "slow steaming" at 17 to 18 knots, the added cost of using the cleaner fuel is $65.80 per TEU, if the headhaul shipper paid the entire added cost of using the cleaner fuel. For a 4,500-TEU ship, the amount would be $72.59 and for a 13,100-TEU ship, the amount would be $49.47.
The math is particularly injurious to dedicated intra-Asia carriers, which deploy smaller ships. But these costs would be even more onerous if they opted for LNG and scrubbers.
Of course, much uncertainty remains and will remain until next year when all the players make their plays and roil the three competing fuel markets with the push-pull of supply and demand.
Low-sulphur hybrid gasoil blends have their problems too. Some worry about the uncertainty about the quality of the fuel" that will be available when carriers begin blending to make low-sulphur products bunker fuels. Many see blended, or hybrid fuels, being too thin a gruel for engines accustomed to heavy bunker oil. The complaint is that low lubricity of low-sulphur gas oil can damage engines and leave ships dangerously without power mid-voyage. This has led to concerns about the IMO rules causing fatal outcomes when ships face engine failure in heavy weather.
Maersk has announced that it would largely reject scrubbers and become the anchor tenant in a Rotterdam terminal that the Dutch fuel storage company Royal Vopak is developing to blend and store low-sulphur bunker fuel.
For the penny-pinching intra-Asia trade, it looks likely that it will leverage its few advantages and take use of the least expensive fuel option available.
As this UN regulatory imposition is rooted to the global warming craze, which enjoys bureaucratic popularity in the West, it is not an emotive issue in Asia region where comparatively few care or even know about it.
LNG looks like it will be the most expensive, even with fresh US supplies flooding the market, since America has become a serious oil producer in recent years through fracking technology. The Americans, though, having hindered their own sales by imposing restrictions on legal end-users, making the creation of a spot market difficult if not impossible.
Given that the most obvious major market for LNG, the cleanest of the clean fuels, will be in the Emission Control Areas (ECA), where short sea trades exist entirely within the realm of supersensitive European Union bureaucracy.
Next down on the purity league tables are the scrubbers. But bunkering officials cannot yet estimate the size of the scrubber fleet, but some say there will be 2,000 ships with scrubbers by 2020. Clarkson's is projecting that up to one per cent of the fleet may be out of service at any time this year as containerships are fitted for scrubbers or have fuel tanks cleaned in preparation for shifting over to the use of low-sulphur fuel.
But what makes scrubbers unpopular with intra-Asia trades is the large amount of space to house the scrubber itself - space that could otherwise be used for cargo. This becomes critical on the smaller ships deployed on the intra-Asian trade lanes, just as it is less critical on long-haul Asia-Europe and transpacific vessels where the ship is not often filled to the brim.
The other advantage the short-haul intra-Asian carrier possesses is it can make several revenue bearing voyages in the time a long-haul Asia-Europe carrier or an transpacific carrier can make one voyage, which goes some way to offset its low-value cargo revenue.
Taken together this would appear to make low-sulphur hybrid gasoil blends the winner over scrubbers and LNG in the intra-Asia trade for 2020 and the years beyond.
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