North of England P&I Association’s “2020 Vision – Get Ready for the Sulphur Cap” event shed some much-needed light on what the cap will mean for the industry
No one really knows what is going to happen on 1 January 2020 when the IMO-imposed reduction in the maximum allowable sulphur content in fuel takes effect. What we do know is that between now and then, shipowners and operators are going to have to make some tough decisions. This was the reason North of England P&I Association held its “2020 Vision – Get Ready for the Sulphur Cap” seminar for members in London in July.
The aim of the event was to provide information on the risks and challenges facing its members. The first issue to address was: will the 2020 sulphur cap actually take place?
“Our view is that there will be no deferment,” said North of England P&I Association deputy director (loss prevention) Alvin Forster, in reference to attempts by some shipowner associations to seek a delay from IMO.
Mr Forster noted that there were several options available to achieve compliance with the sulphur cap and that there were pros and cons with each, involving fuel availability, onboard fuel management, capital and operational expenditure, as well as maintenance requirements. These must all be predicated on factors such as vessel type, trading area and remaining service life.
“Conventional marine gas oil (MGO) is a known fuel, if expensive. I would use MGO and let someone else try out the new fuels"
Check your charterparties, now!
North of England P&I Association deputy director (FD&D) Tiejha Smyth issued a stark warning about the impact of the sulphur cap on charterparties.
“If the allocation of risk is not agreed in charterparty then there will be disputes. All charterparty clauses relating to bunkers need to be reviewed and the terminology needs to be examined,” she said.
“The exact definition of what constitutes high sulphur fuel and low sulphur fuel need to be spelt out,” she added. For instance, when a time charterer takes delivery of a vessel, they buy bunkers on board and re-sell these to the owner at the end of the charter (aka “bunkers on redelivery”). She noted that during the 2020 Sulphur Cap crossover period, there could be a big difference in price and this risk needs to be allocated in the charterparty.
Other potential situations include:
Ms Smyth noted that when it comes to drafting charterparties, North of England P&I Association is keen to work with members, as approaching the problem now will reduce expense in the future.
New rules, new fuels, new worries
Veritas Petroleum Services (VPS) customer account manager Ian Crutchley was invited to the seminar to explain the realities of fuel quality. Mr Crutchley commenced by noting that there are already significant issues with fuels.
VPS collects data on the fuel its tests and when necessary issues bunker alerts to its clients on fuel contamination and similar issues in certain ports. Given the current situation, the 2020 sulphur cap may well be chaotic.
For instance, already in 2018 VPS has issued 33 bunker alerts, more than half of the total amount issued in 2017 (58).
In many cases, the fuel tested complied with ISO 8217, but was off-spec in other ways. As demand for distillates increases, VPS has noticed a corresponding rise in off-spec distillates.
However, by volume, residual fuels are the most tested. “Recently in Houston, we found 100 ships with fuel pump problems,” said Mr Crutchley. The vessels experienced fuel system and filter clogging, fuel pump failure and even engine damage. VPS found that the fuel had been supplied by 10 different suppliers, using 20 different delivery barges. Therefore, VPS concluded the problem lay downstream. An expensive forensic testing of the fuel samples found it contained the phenolic compound 4-Cumyl-phenol, commonly used in the manufacture of epoxy resins and pesticides.
Even though the compound causing the sticking had been identified, it was still not possible to identify the source or where it had been introduced in the supply chain. It is believed that 4-Cumyl-phenol had been added to the 380 cst fuel as a fuel cutter stock to increase the viscosity of the fuel, but when and where is not clear.
“It is important to note,” said Mr Crutchley, “that the fuel complied with ISO 8217 and the presence of this compound would not be detected in ordinary testing. Is this a sign of things to come?”
So even before the introduction of a new range of fuels, there are issues with fuel chemistry. Although these fuels will conform to ISO standards, there are doubts over the ability to mix like fuels from different sources.
“There will be a huge variation from batch to batch, and these will mix in the tank. So segregation of fuel stems will be needed,” said Mr Crutchley. He also noted that the difference in chemistry was not only confined to residual and distillate fuels. There are significant differences in the chemistry of LNG, depending on source.
So, as a fuel expert, what would be his option for 2020? “Conventional marine gas oil (MGO) is a known fuel, if expensive. I would use MGO and let someone else try out the new fuels,” he said.
North of England P&I Association: Assessing the 2020 sulphur cap options
Compliance Option 1: Burn distillates
Marine fuels are categorised as being either a distillate or a residual. Distillates are the lighter-grade fuels from the refining process, such as MGO and marine diesel oil (MDO).
Pros:
• No major capex or modification needed. Minor fuel system modification and tanker cleaning.
• Relatively simple changeover process between 0.5% and 0.1% fuels when transiting ECAs.
• Reduced engine maintenance demands and reduced risk of engine failure.
Cons:
• Price differential between high sulphur fuels and low sulphur fuels is forecast to be high.
• Can refineries meet demand?
• Potential problem with low temperature flow characteristics of some distillates.
• Using distillates requires less or no requirement to heat fuel. Excess steam generation capacity may require venting.
Compliance Option 2: Burn blends and hybrids
Blends refers to the development of compliant heavy distillates or lighter residuals fuels. Hybrid fuels are compliant products that are heavier than MGO and MDO but lighter than residual fuel.
Pros:
• No major capex or modification needed. Minor fuel system modification and tanker cleaning.
• Expected to be cheaper than distillate fuel.
Cons:
• Can refineries meet demand?
• Supply and price volatility.
• Heavier fuels may contain cat fines.
• Some fuels may require onboard treatment (heating, centrifuge).
• Will these fuels meet ISO 8217?
• High risk of incompatibility if using different blends or hybrids.
Compliance Option 3: Install EGCS (scrubbers)
This option is to continue to use fuel with a sulphur content greater than 0.5% and install an exhaust gas cleaning system (scrubber). Three versions are available: open loop pump naturally alkaline seawater into the exhaust flue which neutralises the acids and the wastewater is pumped overboard; closed loop uses a solution of seawater or freshwater with an alkaline chemical – there is no or little discharge; and a hybrid system can operate in both modes.
Pros:
• Typical capex of US$3M-5M means that with a high fuel price differential, payback time is relatively short.
• Expectation of very low high sulphur fuel costs post-2020.
• Lower fuel cost may make vessels more attractive to charterers.
Cons:
• Scrubbers take up space and dwt capacity.
• High power demand: fuel consumption increase of 3-5%.
• Concerns about operation and maintenance affecting compliance.
• Open loop may be affected by future legislation on wastewater discharge.
• Availability of high sulphur fuel unknown post-2020.
• Time required to fit scrubbers affects earnings.
Compliance Option 4: Burn LNG
Burning LNG emits zero SOx and limited particulates, but requires higher levels of safety.
Pros:
• Regarded as a clean fuel and likely to conform to changes in legislation.
• Lower fuel costs.
• Seen as green by the general public.
Cons:
• Relatively high capex.
• Limited LNG bunkering infrastructure.
• Higher level of safety culture required.
• Limited crew experience, increase training required.
• Lower energy density – more volume needed.
• Contains methane, potentially a greater threat than CO2.
• Large LNG tanks restrict dwt and space.
Compliance Option 5: Alternative energy sources
Although there are a number of alternative energy sources for shipping, uptake is low.
Options include:
• Methanol (low flashpoint, poor energy density).
• Hydrogen fuel cells: strong green credentials, but heavy and expensive.
• LPG: Similar pros and cons to LNG, popular car fuel in some countries.
• Batteries: Low maintenance but technology insufficiently developed to power ocean going vessels.
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