Per Funch-Nielsen (20|20 Marine Energy): There are issues to consider surrounding passenger ship operators' choices for meeting the 2020 low sulphur directive

While many passenger ship operators have decided how they will meet the 2020 low sulphur directive, there are issues to consider surrounding their choice. Senior associate at 20|20 Marine Energy Per Funch-Nielsen explains

Come 1 January 2020 all ships will need to reduce their sulphur emissions by more than 80% at a minimum from a maximum of 3.5% sulphur to 0.5%. It's a huge change for the passenger and ferry sector, and it will be the biggest decrease in the sulphur content of a transportation fuel ever undertaken.

Compliance can only be achieved by switching to substantially lower sulphur fuels – and there are credible advocates for LNG, hydrogen, heavy fuel with scrubber, hybrid diesel-electric or going fully electric – but each comes with additional costs, complexities and challenges.

Unlike the delays we’ve seen to the Ballast Water Management Convention, this change is definitely being implemented and it will affect all ocean-going vessels. IMO head of air pollution and energy efficiency Edmund Hughes has repeatedly spoken about the impossibility of a delay, and in July last year most member states rejected any talk of a transitional period at IMO’s Marine Environment Protection Committee (MEPC) 71. In short, it’s happening.

The global sulphur cap comes into force in less than 450 days and cruise operators need to ensure that their fleets are fully ready to handle this epochal change. For most operators the near-term decision on what fuel to burn has already been taken, but a number of issues remain and are often complicated further by passengers who expect compliance that goes beyond the letter of the law.

The options

While scrubbers have their merits, the mainstay of compliance will be distillates and distillate blends throughout the shipping sector. In the cruise and ferry sector scrubbers are a much more popular option – especially as many of them already operate in ECAs – but there remain challenges over yard space pre-2020, and substantial concerns about open loop scrubbers’ long-term legality.

Although with Wood Mackenzie anticipating the price differential between marine gas oil and HSFO will be roughly double the 2017 differential, there would be an undeniable commercial attractiveness even in the short term.

LNG also continues to be a longer-term play with continued requirements to develop global infrastructure and bunkering standards. Often left unspoken but very much a reality, is the potential for non-compliance. But as we’ve seen from the French police’s reaction to alleged air pollution by P&O Cruises’ Azura, there are unlikely to be many captains who are willing to face the prospect of a year in jail and a €200,000 (US$230,000) fine.

Steaming into 2020

Whatever happens, the reality is that the global sulphur cap is already changing the structure and will soon substantially disrupt the supply-and-demand equilibrium of the oil market. Yet regardless of the compliance solution shipowners and fuel payers adopt, too many are still yet to fully map out the consequences and second order effects of their choice.

Change is happening, and there remains substantial room for improvement in terms of understanding the cost and operational implications, so that a sustainable and cost effective long-term strategy can be implemented. We are moving into a new era for shipping and bunkering, where there are real opportunities for companies on the buy and supply side of the marine fuel supply chain to realise real competitive and commercial advantage. 

The whole global supply chain – refineries, shipowners and operators, traders, blenders, and physical fuel suppliers – will be affected by these changes. As such, owners and fuel buyers need advice and counsel from companies such as 20|20 Marine Energy on how to implement and manage the solutions they’ve chosen to ensure compliance, mitigate risk, and keep their costs as low and as controllable as possible.

Low sulphur cap: one size does not fit all

Meeting the 2020 low sulphur cap will require cruise and ferry operators to take a flexible view of solutions on a ship-to-ship basis to deal with challenges including bunkering.

There is no one solution for the passenger ship industry to meet the low sulphur cap – it varies from ship-to-ship, top operators argued at a passenger ship conference at September 2018 maritime fair SMM.

Cruise and ferry operators should not embrace just one method for meeting the low sulphur cap – Carnival Corp senior vice president of maritime affairs Tom Strang and MSC Group executive vice president, maritime policy and government affairs, Bud Darr highlighted the importance of operators using a variety of ways within their fleet.

Mr Darr illustrated how the MSC fleet was using different ways to meet these regulations, with five ships that “may or may not be fitted with a scrubber”, a series of ships that will be fitted with one and five ships on order to be fuelled by LNG. As he explained, it is important to look at the problem holistically, and find the right solution for the right ships and right itineraries.

Carnival Corp’s fleet is a good example of this too. Its current fleet has 62% of vessels fitted with scrubbers, while 11 newbuildings will use dual-fuel LNG. LNG, while suiting the profile of a newbuild, is much harder to retrofit in cruise ships.

It is not even just about taking a flexible view across the fleet, but even on a single ship. Mr Darr pointed out that operators have to hedge against fuel supply chain difficulties, such as the fuel of choice not being widely available. He said that operational flexibility on a particular ship was important – for example, operating on dual-fuel LNG and MGO, so there is a back-up should problems arise.

Mr Strang (who is also chairman of CLIA Europe environment, safety and security committee) said “LNG meets and exceeds requirements… it is not as available as it could be but we are making it more available, and if we do find a problem then we have dual fuel.”

Underpinning the fuel discussion is the ambitious goal to finally reach zero emissions. “That will be a breakthrough not seen yet,” noted Mr Darr. It will take all sectors of the industry working together to reach that goal, with work starting now.

Shell has a clear vision into 2020

In a move to calm owners' fears ahead of the 2020 global sulphur cap, Shell vice president shipping & maritime Grahaeme Henderson has issued a statement entitled Working Together. 

Shell's statement aims to reduce fears that certain fuels will no longer be available.

Shell is “developing a variety of fuel product offerings to the shipping industry that include marine gas oil and very low sulphur fuel oil (VLSFO) supply in key bunker ports; high sulphur fuel oil supply for ships with onboard scrubbers and liquefied natural gas (LNG),” the statement reads.

“The market will continue to need multiple types of fuel to meet the industry’s demand, such as LNG, 0.10%S, DMA, and 3.50%S for ships with scrubbers. Shell will provide multiple products at key ports.”

To this end Shell is working with customers to test new 0.50% VLSFO in Rotterdam, Singapore and New Orleans.

Mr Henderson also explained the oil major is improving lubricants and cylinder oils to cope the changing fuel compositions that will come with the 0.50% sulphur cap.

The company is also developing a global network of LNG stations that will overlap with key maritime hubs.

The company assured customers switching to gas as a marine fuel that “Shell is working towards a very robust marine LNG supply chain to fulfil our marine customer needs across the world with bunkering infrastructure in place or in development across the Americas, Europe and Asia.”