Business

Clyde & Co: An introduction to decarbonisation in shipping

Law firm examines various IMO and EU regulations which are due to come into force over the next few years and discusses legal considerations they raise for stakeholders.

Published

2 years ago

January 3, 2023

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International law firm Clyde & Co LLP on Thursday (8 September) published a market insight as part of a series of articles to examine various IMO and EU regulations which are due to come into force over the next few years with the aim of regulating and reducing shipping’s carbon footprint through various initiatives.

Associate Kirsten Cottrell-Conacher discusses the key practical and legal considerations they raise for owners, charterers, and other stakeholders:

IMO

There are two upcoming IMO measures directed at reducing greenhouse gas emissions from ships, both added to MARPOL Annex VI in 2021. The two new measures are the Energy Efficiency eXisting ship Index (EEXI), a one-off certification assessing the design, construction, and technical features of the ship; and the Carbon Intensity Indicator (CII), an ongoing measure of how environmentally friendly a ship’s operations are. The IMO’s stated goal is to reduce the carbon intensity of all ships by 40% by 2030 and 70% by 2050 (as against 2008 levels), and EEXI and CII build on existing measures to try and achieve this.

Energy Efficiency Existing Ship Index (EEXI)

EEXI is a one-off classification of the energy efficiency of a ship’s design, construction, and technical features, and seeks to impose a minimum standard on the global fleet. A wide range of ship-types are caught by the EEXI regulations (all existing ships of 400 GT and above falling under MARPOL Annex VI) and existing vessels will be required to have their EEXI technical files prepared by the time of their next International Air Pollution Prevention (IAPP) Certificate Renewal from 1 January 2023. Newbuilds will be required to do so by their initial survey before entering service. Information from various vessel documents is used to assist in preparing the EEXI technical file, including capacity plan/lightweight certificate, the trim and stability booklet, any sea trial reports, NOx technical files, the IAPP and, for newer vessels, the EEDI (Energy Efficiency Design Index) technical file.

There is not a single, universal EEXI figure for all vessels – rather, a “required EEXI” exists based on ship type, capacity, and engine and the “required EEXI” represents the minimum standard for each ship type. Each individual ship is then ascribed a calculated “attained EEXI”. The “attained EEXI” for that ship needs to be less than or equal to the required EEXI for that ship type in order to comply with the regulations.

The EEXI describes the ship’s anticipated carbon emissions, expressed per cargo ton and mile, taking into account factors like engine power, fuel oil consumption, and cargo capacity. These factors are all added into a formula which calculates the ship’s EEXI value. Improvements to the carbon intensity of the ship’s design and technical features will reduce its EEXI value.

While EEXI compliance does not necessarily require technical modifications to a ship, in practice this is likely to be required for many vessels in order to achieve the minimum required EEXI rating of “C” or above. The regulations do not prescribe any particular modifications or means of achieving compliance. The most popular choice of measures is Engine Power Limitation (EPL) and/or Shaft Power Limitation (SHAPOLI) as these are relatively cheap, quick, and straightforward to implement (though such modifications can have detrimental effects on speed and other performance metrics, with potentially adverse consequences for any warranties given to charterers, an issue which we will consider in greater detail in a future article in this series).

In 2021, BIMCO published a model EEXI transition clause for time charterparties, specifically addressing EPL/SHAPOLI modifications. Major charterers and/or shipowners also have their own bespoke clauses which we have seen being used, more than the BIMCO “standard” clause.

Other options which may enhance a ship’s EEXI classification include increasing cargo capacity, installing more efficient propellers and associated equipment, or potentially more radical (and expensive) alternatives such as switching to carbon-neutral fuel or introducing entirely green power technologies.

It is important to note that EEXI is a theoretical figure, based on a ship’s design and technical features, not an indicator of its actual carbon emissions. This aspect is covered by the CII.

The IMO intends (under MARPOL Annex VI Regulation 25.3) to review the effectiveness of the EEXI measures by 1 January 2026 to assess their effectiveness, and will possibly make amendments to them once there is real-world data available on the effectiveness of the measures and their practical consequences (such as what steps owners take to ensure vessel compliance; what, if any, consequences vessels with poor EEXIs face; and whether the measures result in a significant reduction of shipping’s contribution to global carbon emissions).

Note: The full article can be viewed here while the podcast series accompanying the article series can be found here.

Photo credit: william william on Unsplash
Published: 3 January, 2022

Winding up

Singapore: Annual general meeting set for Xihe Holdings subsidiary

Annual general meetings will be held on 23 September for Nan Chiau Maritime to receive an update on firm’s liquidation, according to Government Gazette notice.

Published

17 hours ago

September 10, 2024

Admin

A notice was published on the Government Gazette on Monday (10 September) regarding the annual general meetings to be held on 23 September for Xihe Holdings subsidiary Nan Chiau Maritime Pte Ltd.

Annual general meetings for Nan Chiau Maritime are to be held at the following times:

For the company: 2pm
For the creditors: 3pm

The agenda for all the meetings are:

To receive an update on the liquidation.
To receive an account of the Liquidators’ acts and dealings, and of the conduct of the winding up.

The following are the details of the liquidator:

Ho May Kee
Liquidator
c/o 8 Marina View
#40-04/05 Asia Square Tower 1
Singapore 018960

Xihe Holdings Pte Ltd and its subsidiaries are owned by the Lim family, who are also the owners of the embattled Hin Leong Trading.

Manifold Times previously reported several resolutions for the firm were passed by written means, including winding-up the company.

Manifold Times also reported directors of Nan Chiau Maritime declaring the company’s inability to continue business.

Photo credit: Jo_Johnston from Pixabay
Published: 10 September, 2024

Methanol

Methanex to acquire OCI Global international methanol business

Transaction includes OCI’s interest in two methanol facilities in Beaumont, Texas, a low-carbon methanol production and marketing business and a currently idled methanol facility in Netherlands.

Published

17 hours ago

September 10, 2024

Admin

Methanex to acquire OCI Global international methanol business

Methanex Corporation (Methanex) on Sunday (8 September) announced that it has entered into a definitive agreement to acquire OCI Global’s (OCI) international methanol business for USD 2.05 billion.

The transaction includes OCI’s interest in two world-scale methanol facilities in Beaumont, Texas, one of which also produces ammonia. The transaction also includes a low-carbon methanol production and marketing business and a currently idled methanol facility in the Netherlands.

“This is a unique opportunity to create value by acquiring two highly attractive North American methanol assets that will further strengthen our global production base and we expect it will be immediately accretive to free cash flow per share,” said Rich Sumner, President and Chief Executive Officer of Methanex.

“The Beaumont plants benefit from access to North America’s abundant and favourably-priced supply of natural gas feedstock, and are expected to increase our global methanol production by over 20 percent.”

“We believe the transaction will provide significant long-term value to Methanex shareholders while aligning with our strategic objectives of industry leadership, operational excellence, and financial resiliency,” said Mr. Sumner.

“From an operating perspective, we have a shared culture of safety and operational excellence, and we expect the OCI team will help us build new skills in ammonia while enhancing our capabilities in the evolving business of low carbon methanol production and marketing.”

Nassef Sawiris, Executive Chairman of OCI, added, “We are pleased with the opportunity to achieve a significant ownership position and are highly confident in Methanex’s ability to create enduring value for shareholders. As the global leader committed to safety and operational excellence, we identified Methanex as the natural owner of OCI Methanol at the outset of our strategic process, which we initiated in the spring of 2023.”

As part of the transaction, Methanex will acquire the following:

A methanol facility in Beaumont, Texas with an annual production capacity of 910,000 tonnes of methanol and 340,000 tonnes of ammonia. This plant was restarted in 2011 and since that time the plant has been upgraded with USD 800 million of capital for full site refurbishment and debottlenecking.
A 50 percent interest in a second methanol facility also in Beaumont, Texas, operated by the joint venture Natgasoline LLC (Natgasoline). The Natgasoline plant was commissioned in 2018 and has an annual capacity of 1.7 million tonnes of methanol, of which Methanex’s share will be 850,000 tonnes.
OCI HyFuels, which produces low-carbon methanol and sells industry-leading volumes with trading and distribution capabilities for renewable natural gas (RNG). With nine years of experience in the low-carbon methanol business and with an array of blue-chip customers, this will enhance Methanex’s existing Low Carbon Solutions function with additional expertise in this developing segment.
A methanol facility in Delfzijl, Netherlands with an annual capacity to produce 1 million tonnes of methanol. This facility is not currently in production due to unfavourable pricing for natural gas feedstock.

Closing of the transaction is expected in the first half of 2025. The transaction has been approved by the boards of directors of both companies and is subject to receipt of certain regulatory approvals and other closing conditions including TSX approval for the issuance of Methanex shares to OCI.

The transaction is also subject to approval by a simple majority of the shareholders of OCI. The largest shareholder of OCI, has signed an agreement to vote for the transaction.

Photo credit: OCI Global
Published: 10 September, 2024

Alternative Fuels

Corvus Energy gas-safe marine fuel cell system receives type approval by DNV

Firm said the system is the first Fuel Cell System designed to be inherently gas-safe, making it the safest fuel cell system in the market.

Published

17 hours ago

September 10, 2024

Admin

Corvus Energy gas-safe marine fuel cell system receives type approval by DNV

Corvus Energy, supplier of energy storage systems (ESS) for maritime applications, on Wednesday (4 September) announced that the Corvus Pelican Fuel Cell System has received Type Approval from classification society DNV.

The system, which was developed through the three-year-long H2NOR project, is the first Fuel Cell System (FCS) designed to be inherently gas-safe, making it the safest fuel cell system in the market.

Corvus Energy said receiving type approval from DNV confirmed that the Corvus Pelican Fuel Cell System meets the most stringent performance and safety standards required by the maritime industry.

Olaf Drews, Head of Engines & Pressurized Equipment Maritime, said: “It is a special fuel cell system, because the Pelican uses nitrogen for inerting of the fuel cell space.”

“It is the first fuel cell system that uses this technology and this brings it to a very preferred safety level. This is a milestone, and we look forward to the first ship project.”

Despite technology improvements and advancements in battery electric vessels, most vessels cannot achieve zero-emission operations for extended periods of time using batteries alone. For vessels on longer routes and vessels that are unable to charge often enough, we need to add clean fuel and fuel cells to enable extended zero-emission capabilities.

CEO of Corvus Energy, Fredrik Witte, said: “Toyota’s unsurpassed knowledge in developing high-quality and efficient fuel cells, in addition to the strong collaboration and high level of maritime experience among the partners in this development project, has been key.”

“This is a milestone for net zero shipping. We now have a high-quality range extender to add to our existing ESS portfolio with the scalability and the safety needed to be a real driver in the future of marine decarbonization.”

The first Corvus Pelican Fuel Cell System is produced and ready to be installed onboard MS Skulebas, a 35-meter fishing and training vessel owned by Vestland County and operated by Måløy Upper Secondary School in Norway.

The vessel already has a 1 MWh battery system onboard. By adding the Corvus Pelican Fuel Cell System and hydrogen storage, the vessel will be able to operate for four days on zero emission.

Photo credit: Corvus Energy
Published: 10 September, 2024