The introduction of the new global sulphur cap in 2020 is causing nothing short of a paradigm shift in marine fuel. It is more than just another regulation — it is a complex challenge, and how you choose to comply may ultimately impact the future competitiveness of your assets. There is a great deal of uncertainty related to enforcement, fuel availability and technological solutions.
It is challenging to make exact predictions regarding the most cost-efficient approach. DNV GL has compiled and thoroughly analyzed available information to give shipowners a comprehensive overview of the various compliance options. Every ship is different and so is its operational profile. The ultimate decision between HFO and scrubber, distillate fuel (MGO), LNG, low-sulphur fuels (0.50 % S) or other, alternative fuels should to be evaluated individually.
Depending on the underlying assumptions, the calculations lead to different conclusions. DNV GL has established scenarios that can be used as a guidance for investment decisions. Needless to say, any unexpected event, such as volatile changes of fossil fuel prices, can substantially change the outcome. It should however be noted that by 2020, a vast majority of ships will continue to run on whichever compliant fuel, that can be supplied in a port. This will be a higher-valued product compared to conventional HFO, thus inevitably will increase the operating costs. It is in owners’ best interest to investigate all compliance options which may increase their competitive edge.
The status quo
Emission Control Areas (ECAs) in European and North American waters already impose a 0.1 per cent sulphur limit today, and new domestic control areas are being established in ports and areas in China. Most ships switch from HFO to MGO to ensure compliance. For alternative means of compliance, regional restrictions and limitations must be taken into consideration. Factors such as suitable scrubber technology, scrubber water disposal or availability of specific fuels need to be evaluated.
Looking towards 2020, it is challenging to make precise predictions of the future fuel availability and its pricing. The refinery industry will carefully evaluate its future production capacity investments by examining the market expectations and the demand. Shipowners on the other side, tend to assume that refineries will be able to provide enough of the compliant fuel to satisfy the increased demand. The researchers and industry experts do not seem to agree either. A 2016 IMO study indicates that the refining capacity will be sufficient to provide adequate quantities of low-sulphur marine fuel by 2020. There are other sources however, which are more sceptical, pointing to the fact that desulphurization is technically difficult, costly and may discourage refineries from such investment. All of those different opinions and strategies trigger off a lot of uncertainty.
Enforcement of the sulphur cap comes with new requirements. EU member states will be obliged to check 10 per cent of all ships calling at their ports for compliance with the EU Sulphur Directive. There are also reporting duties related to fuel sample analyses and surveys. In order to raise awareness of the sulphur control issues, inspectors and crews will have to be appropriately trained. Enforcement on the high seas is still an open question.
It is clear that every owner has an interest in identifying the most economical and competitive strategy for sulphur cap compliance. DNV GL has prepared special evaluation lists presenting all of the available options. These lists are sensitive to various factors such as ship age, operating regions, trade patterns, as well as cost development diagrams accounting for the CAPEX and OPEX of each solution.
It has turned out that based on our assumptions for future cost of fuels and the corresponding investment, a SOx scrubber installation may prove to be the most cost-efficient choice over a ten year period. It must be noted however, that the experience with respect to scrubber technology is mainly limited to some passenger and ro-ro vessels operating in ECAs. Retrofitting a scrubber system can be technically challenging. Furthermore, certain local restrictions regarding the discharge of scrubber wash water or sludge disposal may apply in addition.
On the fuel side, it is expected that new 0.50% S-compliant blends will be introduced. Similar to hybrid fuels used in ECAs today, a diligent use and handling of them will be important for safe and successful operation.
Among alternative fuels, LNG will probably get more traction as availability and bunkering infrastructure improve. This however, applies mainly to the newbuild tonnage, especially for ships which will operate extensively within NOx ECA regions. Beyond being a sulphur-free fuel, LNG also offers a reduction in NOx emissions particulate matter and CO2 footprint compared with conventional fuels. Given the present regulatory outlook, these fuel characteristics will probably become more and more attractive in the future.
Another question in the feasibility equation is the proportion of time a vessel spends inside the ECAs. Furthermore, there is also an element of the fuel consumption which partly defines the attractiveness of the ship in the charter market. A free DNV GL guidance paper “Global Sulphur Cap 2020” is available for download. In addition, DNV GL offers a wide range of advisory services to help find the most cost-effective compliance strategy, including ship-specific calculation services and feasibility studies.