European carriers must soon decide whether to opt for LNG, low sulphur blends or scrubbers before January
 European shipowners and shipmanagers are the most regulated, supervised and most frequently suspected of wrongdoing despite the number of times European Commission competition authorities have come up empty after raiding company offices.
Given the level of fines expected for flouting shipping regulations, from which the EU hopes to harvest, the world's biggest container carriers have spent mega bucks on compliance officers and legal advice to stay on the right side of the law next year.
That's when the United Nations mandate for low sulphur fuel kicks in. It's a virtual ban on sulphur emissions from ships, cutting down the allowable level to .05 per cent from today's 3.5 per cent.
All agree the mandate will be costly. Just how costly is hard to say until all have experienced the born-again marine fuel market and the market has experienced how carriers adjust to the changes known as IMO 2020.
The UN's International Maritime Organisation (IMO) may have drafted the rules, but local authorities enforce them. Poorer Asian, African and South American nations may well be lax and prefer ships to call providing work for those ashore.
But Europe, the biggest and richest market for imports and the source of quality exports, has nothing to gain from laxity as the revenue from fines can far surpass the expense of collecting them.
Thus, major container lines won’t risk non-compliance. Any violation would cause a major loss of “brand value,” said Lars Jensen, who heads SeaIntelligence Consulting.
Fines are severe. Recently, a small the Greek-flagged tanker was fined US$4 million for discharging oil-contaminated ballast water into Houston Harbour. Soon, similar hefty fines will be levied for having the wrong sort of fuel aboard. Not burning it, simply having it. That's been recommended as a separate finable offence.
Singapore, for example, has threatened to imprison ship captains who are in gross violation, and fine others S$10,000 (US$7,400.) In addition, a non-compliant ship could be prohibited from discharging cargo or forfeit insurance coverage.
But in the US today, authorities proceed in civil rather than criminal court because fines, or cash settlements, are just as big and one need not prove a case "beyond a reasonable doubt", only on the "balance of probabilities".
There appear to be three ways to compliance, the use of liquefied natural gas, low-sulphur fuel, that is, composite mixes of standard bunker and more refined fuel often called blends, and finally scrubbers, the use of cheap heavy marine fuel, but removing sulphur from exhaust before releasing it into the air.
Limited LNG infrastructure is holding back up widespread adoption of LNG, say its vociferous SEA/LNG lobby, which sees it as a chicken-and-egg problem: "Fleet operators won’t switch to gas if they cannot be confident of supply, while suppliers won’t invest if they don’t see sufficient demand."
As there are no integrated networks yet for the distribution of LNG, which makes it difficult to transport gas cost effectively between suppliers and customers – particularly when relatively small volumes and remote or unfrequented locations are involved.
LNG partisans say LNG-powered vessels should increase once the new regulations kick in. Again, large vessels are the more likely targets. French shipping giant CMA CGM ordered five LNG-powered mega ships. Germany's Hapag-Lloyd is retrofitting a 15,000 TEU vessel to use LNG.
But many, including SeaIntelligence's consultant, Mr Jensen, doubts the significance of this, pointing out that the life cycle of the largest conventionally-powered container carriers is just beginning.
With less than a year to go, some owners are investing in scrubbers while others are waiting to see how the supply situation for low-sulphur products develops. Low-sulphur fuel oil (LSFO) is currently 40 per cent more expensive than conventional heavy fuel oil HFO, while LNG is 20 per cent less expensive.
To enter the world of blends is to enter a world of a chemical language far from normal usage. One paper, explaining it, starts off discouragingly: "By now, most people know that asphaltenes micelles in fuel oil are kept in a colloidal solution by 'high' aromaticity of the colloidal 'soup' of maltenes." It is an arcane world of "visbreaker tar bottoms, paraffinic cutters, asphaltene sludging, slurries" and "aromaticity". It is a field in which not only the combination of blending elements can spell disaster, but the order in which these elements are blended can prove equally catastrophic.
Said chemical engineers Ara Barsamian and Lee Curcio: "The order of blending is one of the concerning issues. Two fuel oil blend components, A and B, each perfectly stable on their own, exhibit a puzzling behavior: when blending fuel A into B, the blended fuel is perfectly stable. On the other hand, blending fuel component B into A leads to immediate sludging."
Nonetheless many owners will opt for compliant low-sulphur fuel like Euroseas CEO Aristides Pittas, who said: "Suffice it to say that together with 95 per cent of the vessel owners, we will not install scrubbers on our vessels and will burn fully compliant fuels.
"Environmental regulations create additional uncertainty as ships will be taken out of service to install scrubbers already in 2019 and the probable increase in low sulphur fuel prices can result in further slow-steaming, which in turn could help strengthen the market," said Mr Pittas.
Which takes us to scrubbers. Scrubbers are either open-loop or closed-loop. Open loop, a simpler technology, accounts for 80 per cent of scrubbers today, said Ian Adams, executive director of the scrubber lobby Clean Shipping Alliance 2020.
Open loop, which has come under attack in Singapore and Dubai, uses seawater in the scrubber towers to neutralise the sulphur, as seawater acts as a natural alkaline agent. Closed loop by contrast uses other chemicals to neutralise the sulphur. Neither Singapore and Dubai will allow open loop waste water into their territorial waters for no other reason that it is better to save than sorry.
Estimates put the number of installed scrubbers by the beginning of next year at just 3,000, or about five per cent of the total vessels in operation.
The downside is that scrubbers are expensive - costs run them runs from $2 million to $10 million. Secondly, scrubber manufacturers just don’t have the capacity to outfit a significant percentage of ships as each scrubber is custom built and takes up a significant amount of space. Third, outfitting a ship with a scrubber requires yard time of three to five weeks.
“Container operators have been slow on the uptake and now they‘re just starting to take them and they‘re also doing it almost in a sort of trial way,” said Mr Adams. “They’re doing two or three ships and seeing how it works.”
The lobbyist says large ships can recover costs within a year and those will be more likely to outfit their exhaust systems with scrubbers. There’s an extraordinary economic advantage there - for now. But if the market swings and refineries produce much more low sulphur fuel, causing the price difference between low and high sulphur fuel to close, that advantage would disappear.
Perhaps, as shipping moves into the second half of 2019 there will be greater visibility that will provide more than an inkling of what lies ahead and the market conditions that might prevail next year to make life easier for all concerned. One can only hope. |
