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IMO 2020

INSIGHT 2020: Refining the Issue

Chris Hudson of Freight Investor Services outlines the looming regulatory changes, how they will be implemented and the solutions the shipping sector could adopt.

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In the first of two articles, Chris Hudson of Freight Investor Services (FIS) outlines the looming regulatory changes, how they will be implemented and the solutions the shipping sector could adopt.

2020 is the 1066 of the shipping world; a date that is etched into our minds accompanied with a vague understanding of its significance. With Armageddon day around a year and a half away, the regulations that will have a dramatic effect on the shipping industry are clear, but how to deal with them and their lasting effects are about as certain as who will win the World Cup.

Bringing about change in the shipping industry is usually glacially-paced at best. That said, there are significant financial challenges, as well as the potential of operational risk, which could make inaction a costly choice.

The first thing to note is that the IMO has been very clear that there is going to be no delay in the introduction of the regulations. Come January 1st 2020 any fuel oil with more than 0.5% sulphur for any normal vessel is banned. There was a point in the legislative process where it could have been delayed, but that has come and gone. If you do not comply, expect a fine (though whether this is enough to deter non-compliance is questionable) or detention while the transgression is remedied.

With 65 out of the 153 coastal states (including all those in the EU) currently signed up, and with 30 of these nations already operating low sulphur restrictions, the likelihood of compliance, at least in the IMO’s opinion, looks good. It’s true that there are non-signatories but the economic and social advantages from cleaner air and seas, as well as higher premiums for refineries from selling 0.5% fuel oil should add weight to compliance.

But what about if there is not enough of the compliant fuel? Well, there will be a non-availability reporting system similar to that used by the U.S. Coast Guard, known as FONAR, which will allow ships to report lack of compliant fuel which can be used as evidence if any cases are brought against them for using High Sulphur Fuel Oil. Phew. There will, of course, also be an exemption for those vessels fitted with scrubbers to make their ships compliant. Double phew.

Further to the main legislation banning the combustion of fuel oil over 0.5% sulphur, there is also a ban on the carriage of the High Sulphur Fuel Oil except as cargo or on a ship fitted with a scrubber. This is pending approval in October of this year but, like a Venezuelan election, we already know the outcome of the vote. This ban will come in slightly later and will begin in March 2020, adding to the likelihood of regulatory compliance.

In trying to deal with the new regulations, there are several options open to shipowners/operators: wait and hope for 0.5% fuel specification, use MGO until a compliant fuel oil is more readily available, or install a scrubber.

Choosing the first option would require the least effort on the part of the shipowner/operator, as well as the smallest financial outlay, but relies heavily on the refining industry to get things right.

The flip side of this solution is that it opens up the possibility of operational risk. The prospect of several different 0.5% grades, or not enough compliant fuel being available, could make bunkering a challenge, though from conversations with refiners, these fears appear overplayed. Although, let’s be honest, you do not want to be the only person with egg on their face in two years’ time.

Using MGO will be akin to buying an Audi. Yes, you will have guaranteed quality and reliability, but rather than just settling for an Audi car with a Skoda badge, you will have to pay for the privilege. It is a fair assessment of the future to see MGO as a legitimate stop gap until the 0.5% conundrum is solved.

There is a projected premium of around $350 over High Sulphur Fuel Oil, but one thing to remember is that this would put bunker prices at around 2011-2014 levels, when prices of IFO 380 were over the $600 mark. If you survived that, then there’s a pretty good chance you will survive this, providing vessels are profitably employed. Once the refineries have got past their meltdown, rushed to get LSFO ready and distributed it globally, you can switch over from contingency MGO. Easy.

Scrubbers have not proved a hugely popular option up to this point. It was reported in February that only 450 scrubbers had been fitted and Mercuria, which has been offering financing help for scrubber installations, had received no orders. There are several considerations to take into account when considering scrubbers: whether there will be the necessary High Sulphur Fuel Oil will be available to make them a financially viable investment and whether the outlay for retrofitting or premium in ordering pre-fitted newbuilds adds up, as well as how long before the technology becomes obsolete or even illegal.

Scrubbers are a great choice for those who trade predictable routes where they can source contracted supplies of lower cost High Sulphur Fuel Oil. For Liners and Ferries, for example, this is a no brainer, and it will come as no surprise that data suggests that these shipping sectors have had the greatest uptake of scrubber orders so far. Where shipping operations are unpredictable, owners have to ask whether they want to risk the scenario where they cannot source cheaper fuel and end up burning 0.5% fuel, totally negating any advantage from the scrubbers.

There could be a significant financial advantage after a short payback period for the scrubber installation. Retrofit costs are currently in the region of $1.5–3 million, and for newbuilds in the region of $1–2 million. Using the predicted spread between the High Sulphur and the Low Sulphur fuel oils owners could achieve payback in as little as nine months for a non-eco VLCC and 15 months for a non-eco MR (basis $250 fuel spread). After this period vessel operations (fuel) will be cheaper, and the asset more desirable to charterers, providing an advantage over non-scrubber-equipped vessels.

The last thing to consider is for how long scrubber technology will be effective. Increasing political and public pressure means there will be no let up in ‘green’ regulation and if new regulation reduces the sulphur content further and as the drive towards low/no carbon fuels picks up pace after 2030, additional financial outlay could be needed. Not all scrubbers are equal and open loop in particular are heading for obsolescence as pressure builds for regulations to counter increasing ocean acidification.

Like anything in life, it costs money to reduce risk, be it using scrubbers or MGO, the cleaning of fuel tanks or the contracting of specific fuels. A lot of the responsibility for a smooth transition in 2020 rests on the refining industry’s ability to solving the industry’s problems. The question is whether they can deliver with a minimum of problems or whether owners need to invest in some back up.

Chris Hudson is a Fuel Oil & Tanker FFA Broker at Freight Investor Services (FIS).

Founded in 2002, Freight Investor Services is a specialist in dry bulk and commodity derivatives, including freight, iron ore, fertilizer and bunker fuel. The company has offices in London, Dubai, Singapore and Shanghai.

For further details about fuel oil swaps or to discuss trading opportunities, please contact the fuel oil desk on +44 207 090 1134 or [email protected].

Published: 4 July, 2018
 

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Port & Regulatory

X-Press Feeders inks MoU with six European ports for green shipping corridors

Firm signed a MoU with Ports of Antwerp Bruges, Tallinn, Helsinki, HaminaKotka, Freeport of Riga and Klaipeda Port to develop infrastructure for provision and bunkering of alternative bunker fuels, among others.

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X-Press Feeders inks MoU with six European ports for green shipping corridors

Singapore-based global maritime container shipping company X-Press Feeders on Friday (5 April) signed of a memorandum of understanding (MoU) with six European ports: Port of Antwerp Bruges (Belgium), Port of Tallinn (Estonia), Port of Helsinki (Finland), Port of HaminaKotka (Finland), Freeport of Riga (Latvia) and Klaipeda Port (Lithuania).

This landmark agreement signifies a joint commitment to accelerate the establishment of green shipping corridors and the broader decarbonisation of the marine sector in Scandinavia and the Baltic Sea. Through this MOU, X-Press Feeders and the participating ports will pool resources and expertise to develop and implement sustainable practices for maritime operations.

Under the MOU:

  • Parties will work together to further develop infrastructure for the provision and bunkering of alternative fuels such as green methanol,
  • Encourage the development of supply chains for fuel that are zero or near to zero in terms of greenhouse gas emissions
  • Provide further training programs for port workers and seafarers with regards to the handling of alternative fuels
  • Leverage digital platforms to enhance port call optimisation
  • Parties will have regular meetings to update and discuss progress on actions for further developing green shipping corridors.

The MOU underscores the collective dedication to broader decarbonisation efforts within the maritime sector.

The collaboration between the parties will begin with the establishment of these two shipping routes:

  • Green Baltic X-PRESS (GBX): Rotterdam > Antwerp Bruges > Klaipeda > Riga > Rotterdam
  • Green Finland X-PRESS (GFX): Rotterdam > Antwerp Bruges > Helsinki > Tallinn > HaminaKotka > Rotterdam

These services are scheduled to commence in Q3 2024, marking a significant step towards more environmentally sustainable shipping services in Europe. This development is significant as these will be the very first scheduled feeder routes in Europe powered by green methanol, an alternative fuel that produces at least 60% less greenhouse gas emissions than conventional marine fuel.

X-Press Feeders’ green methanol is sourced from fuel supplier OCI Global. The green methanol is made from green hydrogen and the decomposition of organic matter, such as waste and residues. 

OCI’s green methanol is independently certified by the International Sustainability and Carbon Certification (ISCC) Association headquartered in Germany. The ISCC system promotes and verifies the sustainable production of biomass, circular and bio-based materials and renewables.

X-Press Feeders’ Chief Operating Officer, Francis Goh, said: “By working together – X-Press Feeders and the six partner ports – aim to efficiently implement green shipping corridors and lead the maritime industry in sustainability. We chose the Nordic and Baltic states as the first markets to deploy our green methanol powered vessels because we found the ports and our customers in these markets to be very receptive.”

“This MoU represents a significant milestone in our commitment to a sustainable future for the maritime industry. By collaborating with these leading European ports, we can collectively drive the adoption of green technologies that accelerate the decarbonisation of our industry.”

Vladas Motiejūnas, Harbor Master of the Port of Klaipėda, said: “In recent years, Klaipeda Port has taken significant strides towards sustainability. This year marks the commencement of construction for green hydrogen production and refuelling stations at the port, along with the implementation of shore-side power supply (OPS) stations for roll-on/roll-off ferries.”

“Furthermore, Klaipeda Port proudly enters 2024 with the Port Environmental Review System (PERS) certification, underscoring our commitment to environmental stewardship. Already, methanol bunkering operations are available at Klaipeda Port.”

“The integration of Klaipeda Port into environmentally sustainable shipping services by X-Press Feeders is a testament to our unwavering dedication to fostering a greener port.”

 

Photo credit: X-Press Feeders
Published: 8 April 2024

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LNG Bunkering

Titan completes successful LNG bunkering op of E&S Tankers ship in Antwerp

Bunker barge “FlexFueler001” delivered 110 mt of LNG bunker fuel to chemical tanker “Liselotte Esberger”, marking a milestone since it was the first time Titan delivered to a vessel of E&S Tankers.

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Titan completes successful LNG bunkering op of E&S Tankers ship in Antwerp

LNG bunker fuel supplier Titan on Monday (19 February) said it executed a successful LNG bunkering operation for E&S Tankers, a joint venture of Essberger Tankers and Stolt Tankers as an operator of chemical tankers within Europe. 

The refuelling operation took place at the port of Antwerp on 15 January. 

“Our vessel, FlexFueler001, flawlessly delivered 110 mt of LNG to the Liselotte Esberger, marking a milestone since it is the first time we deliver to a vessel of E&S Tankers,” it said in a social media post. 

“This operation underscores our dedication to sustainable shipping practices and showcases our commitment to environmentally friendly solutions. We're proud to collaborate with E&S Tankers and look forward to furthering our shared mission.”

Titan completes successful LNG bunkering op of E&S Tankers ship in Antwerp

According to E&S Tankers website, the 7,135 dwt Liselotte Essberger arrived in Hamburg from a shipyard in China on 5 December 2023 and was christened the following day.  

The vessel is first of a total of four newbuildings ordered by the firm that are equipped with LNG dual-fuel engines.

Related: E&S Tankers launches second LNG dual fuel chemical tanker “John T. Essberger”

 

Photo credit: Titan and E&S Tankers
Published: 20 February, 2024

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Shipping Corridor

Report: Korea-US-Japan green shipping corridors can lead to significant environmental impact

Creating green shipping corridors between South Korea, the United States and Japan’s top two busiest routes can reduce up to 41.3 million tCO2 each year, says Korean NPO Solutions for Our Climate.

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Report: Korea-US-Japan green shipping corridors can lead to significant environmental impact

Korea-based non-profit organisation Solutions for Our Climate (SFOC) on Tuesday (13 February) said creating green shipping corridors between South Korea, the United States and Japan's top two busiest routes – Busan-Tokyo and Yokohama; Busan-Los Angeles and Long Beach– can reduce up to 41.3 million tCO2 each year. 

This is equivalent to annual emissions from over 9 million passenger vehicles in the United States.

“We evaluated the anticipated impact of several proposed KoreaUnited States-Japan green shipping corridors involving ports of Busan (KRPUS), Incheon (KRINC), and Gwangyang (KRKAN) —South Korea’s three major container ports,” SFOC said in the report. 

Each of the three South Korean ports will have the most significant environmental impact if connected to ports of Tokyo (JPTYO)/Yokohama (JPYOK) in Japan and ports of Los Angeles (USLAX)/Long Beach (USLGB) in the United States. 

“If container ships that travel KRPUS – JPTYO/ JPYOK and KRPUS – USLAX/USLGB are converted to zero emission ships, we can expect significant reduction in global carbon dioxide emissions, approximately 20.7 million tCO2 and 20.6 million tCO2, respectively,” it added. 

Accordingly, reducing GHG emissions in the global maritime shipping will require coordinated multilateral commitments and actions.

The green shipping corridor initiative is a global effort to align the shipping industry with the 1.5°C trajectory. It aims to:

  • Create maritime routes in which mainly zero-emission ships travel
  • Run ports with 100 percent renewable energy
  • Enforce mandatory use of on-shore power for docked vessels.

“With increasing global shipping emissions, green corridors are key to decarbonising the sector,” SFOC said. 

“Our latest report on green corridors comes on the heels of South Korea and the United States' announcement to work together to implement cross-country green shipping corridors between several of their key ports.”

 

Photo credit: Solutions for Our Climate
Published: 14 February, 2024

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