No half-measures on emissions

The arrival of 2018 means that shipowners now have less than two years to ensure that their vessels are compliant with MARPOL Convention’s Annex VI requirement for all ships trading outside sulphur Emission Control Areas (ECAs, where fuel used must have a sulphur content of 0.1% or less) to only use fuel with a sulphur content up to 0.5%. And yet the maritime industry does not appear to be ready to face up to this new regulation when it arrives. A survey conducted by CE Delft on behalf of Exxonmobil in October revealed that some 70% of shipping company respondents do not believe the industry is ready for the 2020 date. The rule becomes applicable from the start of that year.

Insurance broking and risk management company, Marsh envisages large numbers of vessels seeking to book space in repair yards as January 1, 2020 approaches for the installation of new equipment or conversion to LNG, in an effort to comply with the MARPOL requirements. In a paper entitled Emissions Regulations: Concerns for the Marine Industry, Marsh said: “Delays in yard space availability are likely to occur, as well as possible shortages in supply of new equipment being available at that time. Latecomers risk finding that convenient or preferred yards have no room and, being unable to comply with the new sulphur cap rules by 2020, may risk their vessels becoming non-compliant.”

Different choices available

With no plans for the 2020 deadline to be pushed back, shipowners need to act to ensure their vessels do not contravene the rule from January 1 of that year. There are a number of options for ensuring compliance. The first is using low-sulphur compliant fuel oil. Commenting on the cap, the International Chamber of Shipping (ICS) said that the price of compliant low-sulphur fuel is currently around 50% more than the price of residual fuel. The organisation warns that with the greatly increased demand that will come about in 2020, this gap could widen considerably. However, the Center on Global Energy Policy (CGEP) at Colombia University disputes that: “Expectations that the IMO sulphur standards will restrict bunker fuel availability and cause product markets to rally are likely overblown,” said the centre’s senior research scholar Antoine Halff.

ICS counters that it may be in oil refiners’ commercial interest to make compliant fuel supply as tight as possible, and that they may be “very hard pressed” to supply sufficient amounts of compliant fuel, made specifically for marine used, to satisfy demand in all regions from the first day of the cap imposition. It also added that it was possible in some locations that more expensive fuels, like 0.1% sulphur distillate, would more likely be available, and “refiners and bunker suppliers may focus on meeting increased demand for existing low sulphur products in the knowledge that shipping companies will have no choice but to pay for them regardless of the price”. Many ships may have to use this to ensure compliance.

“But even if significant quantities of 0.5% sulphur fuel are widely available in 2020, it is possible that the price may not be substantially cheaper than 0.1% fuel due to the major investment required to produce it,” the ICS said.

The second option for shipowners to ensure regulatory adherence is to use gas as a fuel, because when it is ignited it leads to negligible sulphur oxide emissions. Shipowners can also use methanol.

An alternative

The other option is for vessels to install “scrubbers” – exhaust gas cleaning systems which “clean” emissions prior to them being released into the atmosphere. These scrubbers serve as “equivalent methods” in the eyes of the International Maritime Organization and approval for their use on a vessel must be given by that vessel’s administration or flag state. The more scrubbers that are installed, less switching from HSFO to the 0.5% blend would be needed and less strain would be put on the world refining system. However, with less than two years to go, the CE Delft study suggested that only 500 ships had had scrubbers installed amid a backlash against the technology. Big names, such as Maersk and Klaveness, have said that they see the technology as expensive and immature. Retrofitting a vessel with a scrubber could cost between $3m and $5m and usually requires a spell at a shipyard.

Whatever measure they use, shipowners should not fool themselves into thinking that there will be no consequences for those discovered to be falling foul of the incoming limit when it becomes applicable. In its emissions regulations report, Marsh said that if shipowners do not adhere to the cap, their vessels could be deemed unseaworthy and their insurance cover could be affected. “The failure to comply with international conventions, and consequently losing flag state convention certification, could affect the validity of a shipowner’s insurance cover if they continue to operate without prior insurer consent,” it said.