Page 30: of Maritime Reporter Magazine (November 2017)

IMO Orders Fuels of the Future

The New Sulfur, Carbon Dioxide Limits Will Demand Precise

Understanding by Ship Owners and Operators.

ALTERNATIVE FUELS

About the Author

A Very Large Crude Carrier (VLCC) with an average fuel cost of $6.2

James Morgan is a Director in Oppor- tune LLP’s Process & Technology prac- million in 2018 could see a fuel costs rising to between $8.5 and $12.5 tice. He has more than 17 years’ expe- million in 2020. An Aframax which would average $2 million in fuel costs rience in the energy industry, primarily focused in the trading and risk manage- for 2018 could see fuel costs over $4 million in 2020.

ment area. e: [email protected]

Globally, new regulations are coming can run up to $6 million per vessel; ship owners will need a clear view of CO2 emissions on all voyages to, from into effect governing the Sulfur Ox- and/or their ? nances to see if they have access to and between any EU or EFTA port. This ide (SOx) limits and CO2 emissions. • Or less ideally, ignore the regula- credit, for the large up-front capital costs regulation, 2015/757, came into force

The International Maritime Organiza- tions and hope they are not ? ned. of a scrubber. In addition to the capital on July 1, 2015 and requires per voyage tion (IMO) has updated the maximum costs, ship owners will have to consid- reporting beginning in January of 2018. amount of SOx allowed in fuels and the Changing fuels completely across the er the loss of revenue during servicing By August 31, 2017 all ship owners are

European Commission is introducing world will be dif? cult, as re? ners aren’t time in dry dock to install the scrubber. required to provide monitoring plans to new reporting requirements to monitor necessarily able to quickly scale to high- Depending on how many ship owners an accredited veri? er.

CO2 emissions. Understanding the im- er demand and potentially will need to choose the scrubber route to solve the The EU MRV requires ship owners pacts of these changes on ship owners build new coker units to ? ll the need. emission requirements, yard space will to report on speci? c parameters of fuel and operators is critical given the market The International Energy Agency (IEA) likely be at a premium and require lon- consumption. Presently, there are four conditions for maritime services. stated that the lowering of the bunker ger lead time to schedule. acceptable fuel consumption monitoring fuel emissions cap is “easily the most Another alternative is to look at con- methodologies:

IMO 2020 and Bunker Fuel Pricing dramatic change in fuel speci? cations in verting the vessel engine to run on less • Bunker Fuel Delivery Note (BDN)

As of January 1, 2020 the IMO will any oil product market on such a large expensive LNG, but this option requires and periodic stock-takes of fuel require a reduction in the sulfur content scale.” Since most vessels are presently an even higher investment by the ves- tanks of fuel oil of all ships to a global sulfur using High Sulfur Fuel Oil (HSFO) for sel owner that will need to be weighed • Bunker fuel tank monitoring on limit of 0.50% m/m (mass/mass), from long haul trade, and only using Low against the commodity prices, fuel board the current global level of 3.5% m/m. Sulfur Gas Oil (LSGO) in ECA zones or spreads and availability of LNG globally • Flow meters for applicable combus-

While this new limit will not change the for certain costal carriers, there isn’t an as a fuel. tion processes lower limits in SOx Emission Control abundance of supply for LSGO at this While certainly not recommended, • Direct emissions measurements.

Areas (ECAs), it will cause a signi? - time. ship owners will need to take a view on cant change in the demands for certain Due to the current lack of demand, there the potential risks of ignoring the regula- Other relevant voyage details will also bunker fuels. By Jan 1, 2020, the IMO’s are not enough re? neries or suppliers to tion, including the expected negative re- be required, including distance travelled, new standards should reduce heavy fuel absorb the dramatic increase in necessity action from investors, clients, regulators time spent at sea, port of departure and demand by more than 2 million barrels for LSGO that will result when this regu- and the general public if they are caught. arrival with date and time of departure a day, according to industry consultant lation goes into effect. Re? ners are eval- While this may be an alternative in the and arrival, cargo carried and transport

FGE. Separately, a Wood Mackenzie uating investments in capital projects short term, when low sulfur fuel is not work.

study estimates meeting the new fuel to account for this demand increase so readily available, it is a risky option over The shipping industry is critical for standards will cost the world shipping that they can produce more LSGO. Fore- time. global trade, responsible for transporting industry $60 billion a year. casts have shown costs for lower sulfur about 90% of goods; fuel costs account

The EU Complication

Fuel Oil, high in sulfur content, has bunker fuels rising anywhere from 40 to for up to 80% of total voyage expenses, been the traditional bunker fuel for the 200%, with most trending on the high- Further complicating the maritime according to Platts. These regulations are maritime industry. With the new IMO er end. More speci? cally, a Very Large control space is the new emission report- coming at a time of prolonged ? nancial regulations, ship owners are left with Crude Carrier (VLCC) with an average ing requirements for CO2 in Europe. stress for much of the maritime indus- few options: fuel cost of $6.2 million in 2018 could European Commission is adding mari- try. Ship owners and operators need to • Switch to a lower sulfur fuel, such see a fuel costs rising to between $8.5 time emissions into its 2009 climate and choose wisely in their strategy for deal- as LSGO or MGO or re? t to run and $12.5 million in 2020. An Aframax energy package. European Union’s up- ing with the sulfur cap and their emis-

LNG; which would average $2 million in fuel coming Monitoring, Reporting and Veri- sion reporting methodology. Those able • Install scrubbers to enable them to costs for 2018 could see fuel costs over ? cation (EU MRV) regulation requires to offer the lowest freight rates stand to continue using the higher sulfur fu- $4 million in 2020. ship owners and operators of ships over increase their market share as shipping els; however scrubber installation If scrubbers are the chosen solution, 5,000 GT to monitor and report their margins become even tighter.

30 Maritime Reporter & Engineering News • NOVEMBER 2017

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