In a panel discussion at the 2019 Asian Tanker Conference, leading Singapore-based shipowners and other experts came together to share views on the commercial challenges shipowners will face when IMO’s sulphur cap comes into force in 2020
In a panel discussion at the 2019 Asian Tanker Conference, leading Singapore-based shipowners and other experts came together to share views on the commercial challenges shipowners will face when IMO’s sulphur cap comes into force in 2020
The panel comprised Nova Carriers (Singapore) managing director Harpal Cheema, OMC Shipping general manager Captain Jagadeesan Natarajan, Fratelli Cosulich chief executive and board member Timothy Cosulich, Bureau Veritas global market leader for tankers and gas carriers Carlos Guerrero and 21 Knots Design & Consulting founder and chief executive Nitesh Ranvah.
From 1 January 2020, an IMO-imposed 0.5% sulphur content cap will apply to vessel emissions. A number of options open to shipowners for compliance with this cap were discussed, including using compliant low-sulphur fuel oil (LSFO), installing exhaust-gas cleaning systems or scrubbers, and using alternative fuels such as liquefied natural gas (LNG).
“2020 is around the corner and it’s a big question mark whether everybody in the industry will be ready by then,” said Mr Cosulich, whose company both owns vessels and offers a range of services such as management, adding “We have clients that are ready now […] and then we have clients that literally have no clue about what they’re supposed to do.”
Compatibility of compliant fuels was a recurrent issue in the discussion. Mr Cosulich explained “Different oil majors and suppliers are developing their own LSFOs, and these products are not necessarily compatible with each other.
“We’ve done a lot of tests and we see a wide range of viscosity […] for a newer ship you can segregate your tanks and that’s all good, but if your fleet is older that’s not really an option.”
“The other problem is availability,” he said, adding “If you’re taking bunkers in ports like Singapore […] there’s not going to be a problem because you’re going to have basically every type of fuel.
“But if your calls are in smaller ports there might be an issue because local suppliers will be constrained in terms of availability of storage and barges.”
The potential cost impact of compliant fuels and uncertainty on pricing was also an issue for consideration. “If you had a steep increase in fuel charges then that can have a big impact and related to that is credit,” said Mr Cosulich.
“When you buy bunkers usually the standard is that you pay 30 days from delivery and [transactions are] based on operating credit.”
“Obviously traders and suppliers are not necessarily going to increase credit lines for every client and that might put cash flows under pressure.”
Capt Natarajan, whose company OMCS acts as Mitsui’s shipowning arm, noted that as an owner in most cases charterers are responsible for supplying compliant fuels. However, he continued, the issue for his company comes when the 1 March deadline for removal of non-compliant fuel from bunker tanks hits. He noted that while some charterers are willing to share the cost of this process, others are arguing that under the charter party it is the owner’s responsibility to handle this.
Mr Ranvah noted that there is market uncertainty regarding the cost of compliant fuels, as well as compatibility issues. He noted that there are two certain solutions for 2020 compliance, which are installing scrubbers or using LNG as fuel.
He noted that installing scrubbers has the benefit of allowing owners to continue to use high-sulphur fuel oil (HSFO) and thereby avoid the issues of availability and compatibility that come with switching to LSFO. He also noted that using scrubbers reduces particulate matter levels, which could be a target for IMO regulation in future.
On the downside, there are high costs involved, he said, noting this involves the capital expenditure to purchase the equipment itself and installation costs, as well as increased operational expenditure, estimating there will be increased fuel burn of between 2% and 5% when using scrubbers.
Capt Natarajan raised the issue of vessel size and whether potential vessel earnings can justify the expense of scrubber installation. “If it’s supramax or handymax size there’s no point fitting scrubbers as it’s not going to give a return [in the present market],” he said.
“For a larger-sized vessel it’s feasible to fit scrubbers but I don’t see any economy in fitting a small-sized vessel with scrubbers if it is not going to provide a return.”
Owners also need to consider the project-management side of scrubber installations, Mr Ranvah said, highlighting the complexity involved in such projects. He estimated that on a single scrubber installation project, combining all stakeholders from OEMs to shipowners, managers, yards, class societies and engineering partners, there will be an estimated 392 subtasks. This could impose a heavy burden on superintendents. While it may be feasible for small owners with only one or two vessels, he noted that for larger owners with fleets of up to 50 vessels and each superintendent managing five or six ships, this may not be feasible. He said “It’s practically impossible that a super can take up this kind of huge project management task along with their current responsibilities.”
“As a shipowner you will need to set up your own project management teams or find a consultant who’s going to do it for you.”
Another issue with scrubbers for owners who have not yet settled on a strategy for 2020 compliance is whether it is even possible to get them installed in time for the sulphur cap coming into effect. In response to an audience question on the possibility of a relaxation of the rules for owners who plan to install scrubbers but are not able to meet the deadline, Mr Ranvah said “There is no relaxation […] if you haven’t done your homework and booked a place then I don’t think you can get away with not burning LSFO.”
The economic viability of installations on older vessels was also under discussion. Mr Ranvah said “I think the whole commercial aspect of making scrubbers lucrative is based on its ROI within 1.5 years or so.”
“There are two basic parameters: One is your fuel price differentials, second is how many days a year you are going to run your ships.”
“As long as you are able to run your ships for more than 150 or 200 days a year, and the differential fuel prices between HSFO and compliant fuels holds on for the next 1 to 1.5 years, then yes it makes sense – if you’re running on spot and going to idle them a lot then no, it will not.”
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