Compliance is and will remain the industry buzzword as we approach the implementation date for the global sulphur cap. But if compliance itself is a given, many question marks remain as to how this will be achieved
In October 2008 at the 58th Session of IMO’s Marine Environment Protection Committee (MEPC), the revised Marpol Annex VI was adopted which subsequently entered into force on 1 July 2010. It was the result of three years of negotiations and the appointment, by then IMO secretary general Efthimios Mitropoulos, of a scientific and industry panel of experts to expedite the task.
The revised Annex VI stipulated a reduction in the global sulphur cap to 0.50% from 3.50%, to be completed by either 2020 or 2025, depending on the result of a feasibility study which was to be completed no later than 2018. Keen for some clarity on the matter, the shipping industry pushed for the feasibility study to be completed sooner rather than later and at MEPC 70, in October 2016, an assessment of fuel oil availability was considered. This resulted in the parties to Marpol Annex VI deciding that the fuel oil standard (0.50% sulphur limit) should become effective on 1 January 2020.
Will little more than a year to go before this milestone date, shipowners are still trying to determine which of five main solutions to the dilemma best works for them: switching to low sulphur heavy fuel oil (LSHFO); using low sulphur distillate fuels, such as marine gas oil (MGO) or marine diesel oil (MDO); switching to newly developed hybrid fuels; employing liquefied natural gas (LNG); or fitting exhaust gas cleaning systems (EGCS), commonly referred to as scrubbers.
Low sulphur heavy fuel oil (LSHFO)
LSHFO would undoubtedly be the simplest solution for most shipowners. However, to produce LSHFO you need a low sulphur crude oil and while there are crudes which will produce a residual with a sufficiently low sulphur content, they are very rare. Therefore, to produce an LSHFO the refiner needs to remove the sulphur, which requires a substantial investment, approximately the same as that required to destroy the residual stream completely. Still, when the residual stream is destroyed it produces some high value products which are of greater value to the refiner than the residual stream.
Low sulphur distillates
A switch to low sulphur distillates is perhaps preferable than the above option, but that is not to say it is a popular choice among shipowners; marine diesel engines are perfectly capable of running on distillates, but they come at a cost. At the time of writing, the differential between high sulphur fuel oil (HSFO) and MGO was more than US$200 per tonne and many analysts are predicting this spread will increase in 2020, driven by increased demand for compliant fuel. Those choosing this option must also factor in that demand for middle distillates, which is where MGO and MDO come from, is already high in Europe and as a continent, the local refineries do not produce enough to meet the demand. As Europe is a net importer of middle distillates, which are used as heating oils in homes and fuel for diesel cars and trucks, increased use by the shipping industry could result wild fluctuations in the price of MGO and MDO.
"The best solution to comply with the 2020 sulphur cap remains with the refineries on land"
The changes to Annex VI will have a significant effect on refiners as well as shipowners. Currently, the market for HSFO is of value to the refiners insofar as it provides an outlet for the by-product of refining - residual fuel. Several refiners have now stated that they will be producing compliant fuels which are being classed as ‘hybrid’. In September 2018, Ocean Network Express (ONE), the holding company set up to integrate the container lines of 'K' Line, MOL and NYK, stated publicly that “Hybrid oil is one of the compliant oils. ONE’s container vessels are equipped to adopt low-sulphur-compliant hybrid oil without requiring special modification. We identified this as one of the most realistic and cost-efficient solutions to enable ONE to be compliant ready by 1 January 2020. We are in discussion with bunker suppliers for specifications.”
ONE’s container vessels can adopt low-sulphur-compliant hybrid oil without special modification
Meanwhile at A.P. Moeller Maersk, head of Maersk oil trading Niels Henrik Lindegaard said: “We believe the best solution to comply with the 2020 sulphur cap remains with the refineries on land. It is important to underline that the vast majority of ships in the global fleet will have to comply with the global sulphur cap through the use of compliant low-sulphur fuels in 2020, given the short time frame. We are well underway in testing, planning and preparing for the 2020 sulphur change over.”
These fuels are going to be refinery-specific but will contain several properties similar to fuels currently being used and will have to be treated with caution. they are unlikely to be compatible when sourced from different suppliers, although if a ship has received fuel from one refinery and can continue to stem bunkers at the same port from the same supplier, compatibility issues may be less problematic. However, when lifting bunkers in another port, care should be taken to ensure maximum segregation. This is also true of conventional fuels and as such may prove less of an issue than some commentators are currently claiming. As Mr Lindegaard noted: “We remain confident that overcoming any potential compatibility issues is a question of thorough preparation.”
Liquefied natural gas (LNG)
The use of LNG results in a 100% reduction of SOX and particulate matter; hence considerable work has been done to enable the use of LNG on ships. The International Code of Safety for Ships using Gases or other Low-flashpoint Fuels (IGF Code) entered into force on 1 January 2017 and this enables the use of LNG on board ships.
Further, LNG eliminates the production of soot, which has traditionally been a concern among cruise companies. AIDA Cruises, the leading German cruise operator and part of the Carnival Group, has been at the forefront of the adoption of LNG. On 31 August 2018 it launched AIDAnova, the first cruise ship powered by LNG; its maiden voyage is planned for December 2018 and it is the first of three new additions to the AIDA fleet, all of which will be powered by LNG.
AIDA Cruises has opted for LNG as a solution for IMO 2020
Exhaust gas cleaning systems (scrubbers)
There has been a renewed interest in EGCS of late, with some high-profile companies ordering significant numbers of units. EGCS, or scrubbers, allow a ship to continue to use HSFO by removing the SOX in the exhaust gas. Scrubbers come in various guises, but the main difference is whether they are wet or dry; dry EGCS use a process called chemisorption, in which a granulated calcium hydroxide is used to remove the SOX from the exhaust gas. As the exhaust gas passes through the reaction vessel, the calcium hydroxide reacts with the SOX to form calcium sulphate (gypsum) and water. This process produces a residue that must be discharged ashore, but the manufacturers of these systems are keen to point out that the residue has a value to other industries, such as cement and fertiliser manufacturers.
Wet EGCS systems can be either open or closed loop, or in some cases hybrid. Open-loop systems use the natural alkalinity of sea water and the exhaust gas is intimately mixed with the sea water in the reaction vessel, with the water absorbing the SOX. The resulting effluent is sulfuric acid, which is diluted using another stream of sea water until the pH value of the effluent is within 0.5 of the pH of the surrounding sea water. Wet EGCS also removes particulate matter (PM). The PM is usually removed prior to the final dilution and collected in the form of a sludge, which must be disposed of ashore.
Closed-loop EGCS employ freshwater, with the addition of a suitable alkaline chemical. The majority of closed-loop EGCS use sodium hydroxide, commonly known as caustic soda. Closed-loop EGCS require a small bleed off the circulating water, which is treated and either discharged overboard or collected in a holding tank if zero discharge is desirable.
Hybrid EGCS combine the features of both a closed- and an open-loop system, as the name suggests. The open loop can be deployed when in open waters at sea, where the natural alkalinity of the sea water can be utilised, while the closed loop will be used in sensitive areas or where the water is less alkaline.
The choice of EGCS will vary depending on the vessel’s use, but all suppliers state confidently that their systems will comply with both the global 0.5% m/m sulphur limit and the 0.1% m/m emissions control area sulphur limit.
Speaking at a conference introducing the company’s Q2 2018 performance, A.P. Moeller Maersk chief executive Soren Skou said: “We may invest in a few scrubbers so as to understand the technology.”
The scrubber option is favoured by bulk carrier owner Eagle Bulk. Chief executive Gary Vogel said during a recent podcast that Eagle has placed a “firm order” for 19 EGCS units with an option for 18 more. He explained that Eagle will install the EGCS during statutory dockings and that by doing some pre-installation work, there is no incremental drydock time for those vessels.
Although Mr Vogel would not be drawn on which of his 48 vessels would be first to receive the scrubbers, he did say that he sees “a quicker return on investment if we fit the scrubbers to the vessels which consume the most fuel”.
"It is fair to say that uncertainty remains at uncomfortably high levels"
While there have been some clear statements by shipowners in recent months about how they see the issue of compliance panning out, it is fair to say that uncertainty remains at uncomfortably high levels. Questions are now being raised about the availability of compliant fuel, the availability of HSFO in the years to come, the time needed to install an EGCS, and the use of LNG in vessels not normally associated with this type of fuel.
So what should shipowners do? Well, remember the old Betamax/VHS debate? You either gambled on one system or the other, or if you could afford it, bought both and waited to see which one came out on top. This is far from practical for most players, but it is the solution of choice for industry big guns like Maersk, as Mr Lindegaard hinted when he said: “Maersk is looking into all possible compliance opportunities for the 2020 sulphur cap, that is LNG, scrubbers and compliant fuels.”
But for those that cannot afford the luxury of multiple options, no simple answers exist.
Many of the topics raised in this article will be discussed/debated at our upcoming Asian Sulphur Cap 2020 Conference, held in Singapore on 24-25 October: https://www.marineengineeringasia.com/index.htm