The appeal of manageability

THE LACK OF abatement technology take-up is “worrying” says Dimitris Argyros of Lloyd’s Register EMEA, especially considering how close we are to the 2015 Emission Control Area (ECA) 0.1% sulphur limit. “You can’t simply flip a switch to comply with the new legislation, unless you are planning on using MGO,” he adds.

So why isn’t enough happening?

“It’s not that people are lacking in information, it’s more that they are suffering from an information overload. Everybody knows the issues – but for many it seems that there’s just too many variables and uncertainties for confident decision making,” says Mr Argyros.

It’s not surprising, given the level of investment. “For every ship operating in an ECA it means an investment in the order of at least a few million dollars per ship no matter the technology being used, so if there’s maybe five or ten vessels in a fleet, given the present economic reality this is not an easy decision,” he says. “However it’s not going to get any easier in 2016 when your fuel bill may have increased by 40%. Furthermore, he points out that the operators who need some kind of retrofit strategy the most tend also to be more complex; ferries and other short sea vessels that spend their time almost entirely inside the ECA zones have more challenges to their engineering than, say, relatively straightforward tankers or bulk carriers.

According to Mr Argyros, there is also a lack of faith in the technology, that it will do what it says on the tin. It’s difficult to get owners to sign on the dotted line as there isn’t enough of a track record in the marine industry yet, despite the fact that many products come from reputable manufacturers and the technology itself is well proven in land based applications. By track record I mean actual, fully operational systems on ships, achieving compliance today – not simply confirmed orders which are indeed increasing.

All the various responses have their issues: “Firstly if you are going to run distillate fuels you are going to put yourself at the mercy of the market and may well see distillate fuel prices skyrocket,” he says. Even at the moment, the price of heavy fuel oil is around US$600-650 a tonne but the equivalent compliant low sulphur alternative is up around a US$1,000. It’s simply a more expensive product- and that’s without the added pressure on demand.

So, what about other fuels?

It has to be admitted that given the necessary changes a complete shift in technology looks seductive as it could hold out the promise of other benefits, like the lower maintenance being touted by LNG or methanol engines.

In the longer term, the issue for many owners are the short to medium term challenges. Getting down to basics, Søren Meyer of OW Bunker is blunt: “The big question is whether the bunkering infrastructure is going to be developed enough to have an impact when the 2015 ECA regulation is implemented. The reality is ‘no’,” says Mr Meyer. He adds, despite a lot of positive sentiment toward this an alternative, the price of LNG itself would have to be a lot cheaper than its energy rivals to push its take up. “Indeed a 2010 study by DNV for the Danish Government’s Environmental Protection Agency found that it needs to be 45% cheaper,” says Mr Meyer.

This really leaves good old fashioned – and slightly less sexy – scrubber retrofits.

A feasibility study by Interferry back in 2011 covered 108 vessels from six leading operators; the results, which showed that scrubbers would not be technically or financially feasible for 60% of the existing fleet, gave a big thumbs down to the mass adoption of the technology. Common themes included a lack of spare deadweight and draught, multiple engines needing more than one scrubber, a lack of void space to fit the new systems into and stability issues from the additions.

However, there are very good reasons to look again at this kind of system. While some vessels may simply not be able to benefit, put against the other strategies, “scrubbers are still a very viable alternative for owners desperate to get away from the price vagaries of distillate fuels,” says Mr Argyros.

“In all cases you are taking a risk, the big question is, which risks can you manage, and which you can’t. Technology, in the grand scheme of things, is maybe more ‘manageable’.” He adds, “If you are competent enough and can mitigate against the fall out of potential system failures, and if you are contractually covered, then I’d say the wholly technological solution is the one that’s more under your control.”

So, what it comes down to is that scrubbers limit the issue to a simpler price and apparatus risk, which frankly at the moment seems a better bet that a fuel price risk – and even though it requires an upfront investment, at least this expense can be ‘scheduled in’.

The other point he makes is that HFO is actually “an environmentally friendly fuel although it doesn’t initially look like one”. He explains that as it’s the by-product of the refining process, essentially a waste that the shipping industry uses to power ships, “it’s going to be there as long as oil is being pumped out of the ground. Making good use of an otherwise waste product is textbook environmental good practice, as long as the impact (emissions and washwater) is no worse than what you would have with distillates. And the lifecycle carbon emissions of HFO (from refinery to stack) are likely to be a lot lower compared to distillates or, in fact, LNG, as both of them require a lot of energy to produce.”

Mr Argyros concludes: “Potentially ship owners looking into scrubber technology could be in a very good bargaining position. Some of the technology providers may have appeared in the market recently but they will have had a good few years of R&D prior to this without any returns, so they need to see something coming back to them soon. I’d say there’s the possibility of a few very good deals to be had for owners who get into this cleverly. However, leaving actions until the last minute, and making decisions in haste involves a lot of commercial risk. Timely planning is crucial, unless you’ve really made up your mind that you will be operating on MGO.” G

lobal regulation on the horizon

The IMO’s global sulphur regulation will force some maturity into mitigation technology simply because it impacts the worldwide shipping fleet and the take-up will be that much greater, but it will be appealing to a very different market.

Mr Argyros says that LNG fuels may still be difficult to reliably bunker in some areas. Mr Meyer agrees, and though he does think LNG will eventually come on stream he puts its establishment on the bunkering scene “sometime after 2025”. Further he thinks that this will only be in conjunction with items like scrubber technology and the “thorough development” of handling, delivery and HSE standards.

Scrubber technology might also gain because many of the issues faced by the short-sea and ferry businesses will be sidestepped. After all, box and bulk carriers for example are by their nature more ‘roomy’ than their ECA counterparts, generally having more void spaces and an easier, less critical fit to the engine and control rooms.

However, would this global take up feed back to making a better deal for those caught in the ECA areas? Well, not soon enough. Mr Argyros points out that although even the global deadline is not too far away, the reality is of the global cap is still not biting. “Further, if it’s not been nailed to 2020, the alternative is that it’s pulled back to 2025. This puts it light years ahead, off the radar for many owners in terms of today’s economic climate,” he says.

He adds: “A large part of the decision about whether to go ahead in 2020 or leave it till 2025 rests on an upcoming IMO fuel availability study – but that’ not due out till 2018. Although there is industry pressure to bring it forward, there’s no sign of that happening. So, what are driving things at the moment are the 2015 ECA and EU requirements, not the 2020/2025 global limit.”