New fuel regulations increase pressure on energy efficiency

With effect from 1 January 2020, a new cap of 0.5% m/m on the sulphur content of fuel oil used onboard ships will come into force. This has been set by the IMO’s Marine Environment Protection Committee (MEPC) and compares to the existing limit of 3.5%. The only exceptions are the four internationally designated Emission Control Areas (ECAs), where it will remain at 0.10%. These include the Baltic Sea, the North Sea, designated coastal areas off the United States and Canada, and the area of the Caribbean Sea around Puerto Rico and the US Virgin Islands.

Consistent implementation of the 0.5% sulphur limit for all vessels will ensure that a level playing field is maintained, with the immediate aim of achieving significant improvements in the environment and human health. Morten Klose, Sales Manager at MCI commented: “Although the benefits are clear – and are something we all welcome – there’s no getting away from the fact that they come with a heavy cost burden for ship operators. Current industry estimates predict a rise in fuel costs of around 45%.”

Complying with the new regulations
There are various options open to ship operators to ensure compliance with the new regulations. One is to use a new form of low-sulphur distillate fuel that already meets the 0.5% sulphur requirements. Although this solution can be applied without making any modifications to engines, the fuel itself is around 45% more expensive.

Another alternative is the installation of “scrubbers” to remove sulphur. Installed within the ship’s exhaust handling process, scrubber technology works by passing the dirty exhaust gas stream through successive chambers containing a “scrubbing cloud” of water. The advantage of this technology is that it enables shipping lines to continue using bunker fuel while still complying with the new sulphur directive. These systems can be installed on new builds or retrofitted to existing vessels. Nevertheless, the cost of installation or modification is high.

Alternative fuels
The most environmentally friendly solution is to switch over to liquefied natural gas LNG. Gas-carrying vessels have been using LNG as part of their fuel source for decades and the technology is well proven. However, using LNG to power conventional ships is extremely costly for both new builds and especially retrofitting. This is because an entirely new form of power system needs to be installed.

At the same time, LNG brings with it a number of challenges that are not present with conventional fuel oil. These include the high energy content of the LNG tank, the risk of explosions in the event of gas leakage, additional hazardous spaces onboard and the need to train the crew to safely use a new fuel source. Less risky alternative fuels such as methanol or biodiesel are also an option, but questions remain regarding their global availability.

Enforcement and non-compliance issues
To enforce the new sulphur regulations, all fuel suppliers will be required to make a declaration on Bunker Delivery Notes to the effect that the fuel can be used onboard within the new 0.5% sulphur limits. In addition, port authorities will be making random checks on vessels in harbour.

Consumers are already very focused on energy performance when buying white goods for their homes. The new regulations mean, that the trend will be further reflected in our industry as well.

Morten Klose, Sales Manager at Maersk Container Industry

Failure to comply with the new limits will also have serious commercial implications. Some major shipping lines have already announced that they will not charter vessels from owners who do not comply with the new regulation. This stance has been echoed by large retailers like IKEA. The Swedish giant has made it clear that noncompliance will be considered a breach of the shipping contract and will lead to its termination.

The Star Cool cost advantage
In direct terms, whichever path to compliance ship owners choose, the new IMO limits will significantly increase the cost of operating vessels. At the same time, this will necessarily affect the cost of generating electricity onboard to power refrigerated reefer containers. In real terms, a 45% increase in direct fuel costs will lead to the KWh cost from a main engine rising to around $0.16, compared to the current $0.11.

To put this into perspective, a typical shipping line has its reefers running for an average of 120 days a year and with a 50/50 mix of chilled/frozen cargo. At current onboard kWh costs, this translates into an annual running cost of around $658 per Star Cool reefer, compared to the $2,376 cost of the least energy-efficient alternative. This means a cost difference of around $1,700 per year, or a staggering $20,000 over the typical 12-year working life of a single reefer.

With the rise in fuel costs that is certain to follow the introduction of the new sulphur limits, this cost differential can only widen. As Morten Klose of MCI observed: “Consumers are already very focused on energy performance when buying white goods for their homes. The new regulations mean, that the trend will be further reflected in our industry as well.”

Reefer Container Energy Index sulfur