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January 30, 2020

Towards "Greener" Global Shipping

The International Maritime Organization (IMO) signed the International Convention for the Prevention of Pollution from Ships (MARPOL) in 1973. In May 2005, Annex VI of MARPOL, which contains the provisions for preventing air pollution from ships came into effect. Ships were originally permitted sulphur emissions of 4.5%. The current global sulphur cap is 3.5%.

01 January 2020 has marked the industry’s most significant moment since the shift from coal, in its implementation of a 0.5% sulphur cap on marine fuel globally and 0.1% limit in IMO designated emission-controlled areas (ECAs).

 

There are 3 options available to the industry to meet the new sulphur cap:  

 

LOW SULPHUR FUEL

High sulphur fuel oil (HSFO) powered ships will simply need to switch to fuel oils that have a lower sulphur emission rate to be deemed compliant by the IMO, such as gas oils and low sulphur fuel oils. Although this is the most cost-effective option, there is a substantial price difference between low and HSFO which could significantly increase operating costs.

 

SCRUBBERS

These are exhaust cleaning systems which will allow vessels to continue burning high sulphur fuel oil. The scrubbers capture sulphur and other pollutants as the ship burns fuel. The material and installation of this system results in a significant upfront capital investment, however the lower cost of HSFO offsets the initial upfront investment. Ships without scrubbers will still be allowed to carry HSFO, but only as cargo.

A recent survey estimates that around 19% of shipowners will use this method while everyone else will opt to burn a compliant bunker fuel. Uncertainty in adoption of this approach exists due to the following reasons:  

·       the technology is new and unproven;

·       further environmental regulations may render this approach useless -e.g., China and Singapore have both banned the use of open–loop scrubbers;

·       the availability of HSFO in smaller ports could become uncertain as refineries may reduce their production of such fuel as global demand shrinks.

 

LIQUID NATURAL GAS (LNG)

LNG is the cleanest burning fossil fuel as it emits almost zero sulphur. This means that ships fueled with LNG will be able to operate in ECAs without switching fuel sources, while ships fueled with oil will need to switch to a fuel that emits even less sulphur than the standard low sulphur oil, when passing through ECAs.

Building LNG fueled ships are comparatively more costly than installing a scrubber. However, analysts believe that LNG–fueled ship engines and equipment have greater longevity and need less maintenance than ships fueled by oil. In addition, regardless of the cost implications, greenhouse gases are reduced by burning LNG which will be advantageous in the future. The IMO has stated that it will attempt to reduce total annual greenhouse gas emissions by at least 50% by 2050.

The IMO’s sulphur cap will result in three main positive changes:

·       positive impact on human health– premature deaths, cardiovascular, respiratory and pulmonary diseases will decrease;

·       cleaner air – sulphur emissions from ships will drop 77% which will result in an annual reduction of approximately 8.5 million metric tonnes of sulphur emissions;

·       increase in fuel quality – most ships will switch to a higher quality fuel to meet the new limit.

 

The new cap results in not only significant changes and challenges,but an even greater significant need for investment from all parties in the bunker supply chain.