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LR: Retrofit or newbuild? The challenge for shipowners seeking future carbon compliance

‘We estimate that at least 45% of ships today will not be compliant with carbon intensity regulations in three years’ time. Owners are asking us many more questions,’ says Nikos Tsatsaros of LR.
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Classification society Lloyd’s Register recently published an article on the growing demand for replacement ships as shipowners face more carbon regulations targeting older, less efficient ships. Three Lloyd’s Register experts share their views on whether it’s wiser to retrofit an existing vessel to improve its carbon ratings or replace it with a new one: 

As Program Manager of LR’s Maritime Decarbonisation Hub, Charles Haskell is well-placed to outline challenges facing shipowners today as they weigh up the options of retrofits versus new so-called ‘future-proofed’ newbuild ships. The reality is no ship can be fully future-proofed yet because the marine fuels of the future are still under development and there are few rules, designs or builders, no crews, and no managers for the ships of tomorrow.

Perhaps most importantly from a Class point of view, there are no safety frameworks yet, though Haskell and his team are engaged in an ammonia-for-fuel project. It is focusing on a detailed quantitative safety risk assessment spanning several industrial sectors, outside shipping, over several decades.

But the reality is that ship designers cannot even offer blueprints yet; shipbuilders don’t know what materials will be required; repairers have no experience of new fuel technologies; ships’ crews are not trained to handle new fuels or operate ships which use them; and shipowners’ land-based staff, including experienced superintendents, will need to learn about new fuel supply systems, storage, and combustion technologies.

Haskell refers to the Maritime Just Transition Task Force, set up during COP26, in which LR was involved, which has concluded that no fewer than 800,000 seafarers will need to be trained by 2030.

Three decades of retrofits

Haskell has clear views on the question of retrofit or replace. He points to analysis from The Silk Alliance, an initiative set up by the LR Maritime Decarbonisation Hub of 11 members (now 12) that has developed a future fuel framework to enable the setting up of a scalable green corridor cluster. Their analysis has revealed that quite apart from existing ships, 20-30% of those that are built in the years ahead will need to undergo retrofits before 2050.

That means, Haskell explains, that the challenge facing owners and operators today is not only what to do with existing ships, especially younger ones; it is also how to ensure that ships designed and built in the balance of this decade can be retrofitted effectively and economically before the middle of the century.

Nikos Tsatsaros is LR’s New Constructions Sales Director. He has seen a significant change in owners’ thinking over the last year. “There is now a realisation that the clock is ticking,” he says. “We have moved on from theory; two years ago, they were asking ‘what is ammonia, what is methanol?’

“Our clients realise that they need a technical understanding of what is coming and to understand the technologies and how they work, how crews can be prepared, and how ships may be designed and operated. They certainly need to know that there will be an acceptable return on investment. And they realise that collaboration with charterers is essential.”

Complex charter negotiations

Tsatsaros reveals that charter negotiations on new ships are growing in complexity. For owners, adopting new technologies is about investment returns and therefore close attention is required to clauses in the charterparty agreement relating to ship performance. On new projects that are under development, Tsatsaros sees some charterers who are proving to be supportive, others who are not. More collaboration is required.

“We have an essential role to play here. Our vision is to be the trusted adviser to our clients, whether it be in new construction or retrofits. Charterers’ strategies vary and some say that extra costs are for an owners’ account. Others are more realistic If the cost of providing the service goes up, the charterer will have to pay more. I think charterers’ views are softening. It’s a matter of collaboration between different stakeholders.”

Retrofits on younger ships often make good sense, he says, but options become limited on older vessels where significant capital investment won’t pay back over the vessel’s operational lifespan. Meanwhile, some new technologies cannot be installed on existing ships and the cost of a retrofit could actually work out to be more expensive. In these cases, LR’s cost benefit analyses can prove invaluable, he says.

Tsatsaros also stresses the broad range of owners and their access to resources. The industry’s leading pioneers, such as major container lines, have sufficient muscle to test new fuels on their own, but most shipowners lack the resources for this.

“Smaller owners want advice on available options, techno-economic guidance, and involvement in joint development projects. We are engaged in a large number of these, across both newbuild and retrofit projects,” he says.

Practical aspects are key considerations. “When owners have understood the new technologies that are likely to become available, they are asking how ships can be made ready today for economically viable modifications tomorrow. And, of course, there are different levels of ‘readiness’.”

“As an adviser, we can step in and say: ‘These are the options. Here’s how we can help you. Let’s work with a designer, a shipyard, an engine builder, and others, to identify the best strategy and develop something that best suits your needs.’”

Speaking of the existing fleet, Tsatsaros says there is no time to lose. “We estimate that at least 45% of ships today will not be compliant with carbon intensity regulations in three years’ time. Owners are asking us many more questions; what’s happening in China, what’s happening in South Korea, are there enough shipyards?

“This last question is important from a retrofit perspective. If there are no newbuilding slots available, then retrofitting older ships may be the only option. If there is a proper cost analysis and a good charterparty where the charterer is willing to share the cost, then you have an asset with another ten years of viable operation. However, my concern is that charterers may not yet be ready to support retrofit projects. Of course, it depends, and must be viewed on a case-by-case basis.”

Note: The full article ‘Retrofit or newbuild? The challenge for shipowners seeking future carbon compliance’ can be found here. 

 

Photo credit: Lloyd’s Register
Published: 10 April, 2023

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Biofuel

China Shipping & Sinopec Suppliers completes first biofuel bunkering op of passenger ship in Dalian

Firm successfully refuelled passenger ship “Chang Shan Dao” owned by Cosco Shipping Ferry with B24 bio bunker fuel on 29 November at Dalian Cruise Port.
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China Shipping & Sinopec Suppliers completes first biofuel bunkering op of passenger ship in Dalian

China Shipping & Sinopec Suppliers Co., Ltd. on Wednesday (29 November) successfully refuelled passenger ship "Chang Shan Dao" owned by Cosco Shipping Ferry Co., Ltd. with B24 bio bunker fuel at the Dalian Cruise Port. 

The occasion marked the first biofuel bunkering operation for passenger ships in China. 

The B24 biofuel oil used was blended with 24% biofuel and 76% conventional low-sulphur fuel oil.

Sinopec China Shipping Fuel Supply, which is responsible for the bunkering operation, is a bunker supply firm jointly established by Sinopec Group and COSCO Shipping Group.

According to Li Zhi, Deputy Party Secretary and Deputy General Manager of China Shipping & Sinopec Suppliers Co., Ltd., the biofuel bunkering business is another step in the company's active business of the group's development strategy. 

The bunkering operation after the firm completed the first bonded biofuel bunkering operation of a domestic ship on 7 September. 

Disclaimer: The above article published by Manifold Times was sourced from China’s domestic market through a local correspondent. While considerable efforts have been taken to verify its accuracy through a professional translator and processed from sources believed to be reliable, no warranty is made regarding the accuracy, completeness and reliability of any information.

Photo credit: China Shipping & Sinopec Suppliers
Published: 8 December, 2023

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Alternative Fuels

Singapore, Tianjin to pilot and trial alternative bunker fuels following shipping corridor MoU

Singapore – Tianjin Green and Digital Shipping Corridor will serve as a valuable testbed for both countries to pilot and trial digital solutions, alternative fuels and technologies, amongst others.

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Singapore, Tianjin to pilot and trial alternative bunker fuels following shipping corridor MoU

The Maritime and Port Authority of Singapore (MPA) and the People’s Republic of China’s Tianjin Municipal Transportation Commission on Wednesday (6 December) signed a memorandum of understanding (MoU) to establish the Singapore – Tianjin Green and Digital Shipping Corridor.

Mr Teo Eng Dih, Chief Executive, MPA, and Mr Wang Zhinan, Director General, Tianjin Municipal Transportation Commission, signed this MoU.

The MoU marked the first Green and Digital Shipping Corridor established between Singapore and China to support the decarbonisation, digitalisation and growth of the maritime industry between Singapore and the Bohai Region. 

The Singapore – Tianjin Green and Digital Shipping Corridor will serve as a valuable testbed for both countries to pilot and trial digital solutions, alternative bunker fuels and technologies, and facilitate talent development to support the decarbonisation and digitalisation of shipping. 

Singapore and Tianjin will work with the research community, the  institutes of higher learning, and industry stakeholders such as shipping lines, port operators, shipbuilders, classification societies, and bunker suppliers to enable more efficient port clearance through digital exchanges, encourage the offtake of zero or near-zero greenhouse gas emission fuels and adoption of new fuel technologies, spur innovation and support the growth of the maritime startups community, and facilitate manpower training and professional development.

The establishment of the Singapore – Tianjin Green and Digital Shipping Corridor reaffirms the strong commitment by Singapore and Tianjin to accelerate maritime decarbonisation and digitalisation. Singapore will also be exploring the establishment of similar collaboration with other maritime and port ecosystems within China.

Photo credit: Maritime and Port Authority of Singapore
Published: 8 December, 2023

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Decarbonisation

Report highlights routes-based action plan methodology to accelerate uptake of clean bunker fuels

NextGEN Connect-GreenVoyage2050 collaboration, which includes Singapore, emphasises the important role of regional energy hubs in enabling the inclusive adoption of clean marine fuels.
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Report highlights routes-based action plan methodology to accelerate uptake of clean bunker fuels

The Maritime and Port Authority of Singapore (MPA) on Thursday (7 December) said the NextGEN Connect-Green Voyage2050 Project identified a key role for regional hubs to help connect large demand clusters and remote locations, with regional fuel supply sources, in order to enable a more inclusive and effective transition to a low-carbon maritime future. 

The project is a collaboration between Singapore, Norway and the International Maritime Organization (IMO). 

These findings were unveiled in the Lloyd’s Register Maritime Decarbonisation Hub (LR MDH) report titled Routes-based Action Plans: A Toolkit launched at the Voyage to Net-Zero Forum, which was organised by MPA, at the 28th United Nations Climate Change Conference (COP28/CMP8/CMA5) yesterday.  

The report was developed following a workshop discussion that was held from 5 to 6 October 2023 in Singapore, with the participation of 40 stakeholders representing ports and National Administrations across Asia, based on the concept of the LR MDH’s First Movers Framework for green corridors. The workshop simulated the process steps of the routes-based action plan methodology, addressing the limitations in its application in the wider Asian context. Additional engagements with stakeholders from the Pacific are envisaged to further refine the methodology. 

“One of the key findings in our report highlighted the varying pace of decarbonisation efforts across the Asian region and the need for regional coordination among governments to establish energy clusters that will serve both as demand centres and energy producing hubs” said Charles Haskell, Director at LR MDH. 

The creation of energy producing hubs includes defining a strategy that brings together demand from different countries at different developmental stages across the region to build up investment cases for implementing energy infrastructure at scale, all the while taking into consideration the economic and social benefits for local communities. 

The report also emphasised that routes-based action plans should be steered by national governments to give confidence to the industry’s infrastructure investment decisions, with development banks and regional funds needing to play a part to help tailor financing solutions to support infrastructure development. 

“If we truly want to achieve a net-zero future where no one is left behind, we cannot focus only on existing first mover initiatives. We must also study locations where the energy infrastructure is still in its infancy”, added Charles Haskell. 

Essential to driving the implementation of routes-based action plans, as highlighted in the report, is the pooling of resources and capacity building to develop the business case for building the necessary infrastructure for regional hubs that include Least Developed Countries (LDCs) and Small Island Developing States (SIDS). This will require regional coordination and collaboration involving governments and all stakeholders across the maritime supply chain.

Mr. Teo Eng Dih, Chief Executive of MPA, said: “As we steer toward a sustainable maritime future, fostering a collective and inclusive approach is imperative in the development of green corridors and the energy transition to decarbonise international shipping.”

“The NextGEN Connect-GreenVoyage2050 collaboration emphasises the important role of regional energy hubs in enabling the inclusive adoption of clean marine fuels, particularly for LDCs and SIDSs. MPA looks forward to continuing its collaboration with IMO, Ministry of Climate and Environment of Norway and LR MDH to pilot solutions to reduce GHG emissions from ships and drive innovative transformations in the maritime industry.”

Sveinung Oftedal, Chief Negotiator of the Norwegian Ministry of Climate and Environment, said: “Separate routes for emission-free ferries and ships can play an essential role in stimulating early action to adopt zero or near-zero emission technologies and fuels, and hence are an important step towards decarbonising shipping. There is currently a significant volume of maritime traffic between Asian countries, and our workshop was a great forum to discuss opportunities the decarbonisation of maritime shipping can bring and how efforts can be linked to countries’ wider energy transition.”

Jose Matheickal, IMO Director of Partnerships and Projects, said: “Supporting developing countries, including SIDS and LDCs, in their efforts to implement the 2023 IMO Strategy on the Reduction of GHG Emissions from Ships is imperative to the decarbonisation of the maritime sector. IMO is pleased to provide, through this collaboration, practical support around the development and subsequent implementation of National Action Plans and route-based actions in line with IMO’s MEPC RESOLUTION.366(79) that encourages Member States to undertake these voluntary actions to facilitate the achievement of greener shipping and reduced emissions.” 

Note: ‘Routes-based action Plans: a toolkit’ can be found here. 

Photo credit: Maritime and Port Authority of Singapore
Published: 8 December, 2023

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