Container shipping can reduce its carbon footprint, but this will come at a cost to shipowners/operators
The date 1 January 2020 must be deeply etched on the minds of all shipowners/operators in the world, as this is when the International Maritime Organization’s (IMO) latest cap of 0.5% on the sulphur content of bunker fuels comes into force. Currently, bunkers containing 3.5% sulphur are used, apart from in Sulphur Emission Control Areas (SECAs) where the threshold is an even lower 0.1%.
The cost ramifications are enormous. Analysts have suggested that the global liner industry could face additional expenses of US$12B or more a year because the new compliant low-sulphur fuel oil (LSFO), which requires more refining, is considerably more expensive. While alternatives, such as LNG, biofuel, hydrogen and renewables (solar and wind power), are available, these are often pricier and their supply is limited.
Meanwhile, in the case of an LNG-propelled container ship, it is 15-20% more expensive to build, and there is an estimated 3-4% loss in slot capacity, owing to the tanks that need to be installed to hold the gas. That can be as many as 880 TEU on a 20,000 TEU capacity ULCV.
Taking the treatment Another option for owners is to fit scrubbers to their ships’ exhaust systems. These filter out the dangerous emissions that result from burning heavy fuel oil (HFO). This choice also entails additional expense and a loss of about 0.3% of slot capacity, because:
Open loop scrubbers can be flushed and cleaned with sea water, but hostility to this type of unit is growing, as it dumps sludge in the oceans and is believed to be a risk to marine life. Several countries’ ports, including Singapore, China, the UAE (Fujairah) and Ireland (Waterford), have banned this practice in their territorial waters, and other nations are likely to follow suit before the new IMO regulation comes into force.
Shyam Thapa, research and development manager at Oslobased Yara Marine Technologies, a leading designer and manufacturer of vessel exhaust gas cleaning systems, is convinced that open loop scrubbers are acceptable in 80-90% of maritime trades.
Nonetheless, he noted that specific ship operations and trading situations were complicated and often changing. “Our estimates for hybrid solutions assume a closed loop operation for just 15% of the time,” he explained. “But where a vessel operates in coastal waters where open loop is forbidden, owners that fit our hybrid units can switch it quickly to a closed loop mode or switch to an alternative fuel.
“I think the main thing is to emphasise that the overall picture is more complex than what is presented in the media. There are many factors in the calculation, and each case is different. There is no blanket solution for every situation.”
This is the principal reason why owners/operators are keeping their options open, plus it allows them the opportunity to evaluate the market and new technologies as these develop.
By the numbers
Addressing delegates at TOC Asia in Singapore this month, Tan Hua Joo, principal, liner research services at Alphaliner, said: “The biggest uncertainty remains the cost of new LSFO and the currently used HFO. The current spread between HFO and the 0.1% sulphur fuel required for SECAs, which is much less than the 0.5% global cap for IMO 2020, is currently about US$200/t.”
Although he suggested there could be supply issues initially and that it would be difficult to forecast with any accuracy supply/demand issues in the short term, he stressed that “any teething problems would be resolved relatively quickly, certainly within 12 m
He added: “I expect the spread [between HFO and LSFO] to become significantly below US$200.” While this is not a huge gap, especially as HFO prices themselves were in excess of US$500/t three to four years ago, the analyst believes that the “economics of fitting scrubbers is compelling”.
According to Alphaliner’s latest survey, which was conducted in March 2019, liner shipping companies have placed orders for over 540 scrubbers, with installation envisaged between now and mid-2021. They are believed to represent an investment in excess of US$2.2B.
MSC (in excess of 180 units), Evergreen Line (90), Maersk Line (50) and Hyundai Merchant Marine (41) are the leading proponents of the concept, with CMA CGM, Hapag-Lloyd, Yang Ming and Wan Hai Lines installing scrubbers on a smaller number of ships in their fleets.
Maersk’s inclusion in the above list is surprising, given its initial reluctance towards the technology. The world’s largest carrier had firmly pointed out that its strategy for IMO 2020 was to use sulphur-compliant fuel from land-based refineries. While the carrier has made significant moves in this direction, it now sees scrubbers as playing an important and complementary role in its operations.
Alphaliner’s Tan expects 200 ships with a combined capacity of 2.4M TEU to be fitted with scrubbers in 2019, and for 20% of global container ship operating capacity to be using the gas cleaning systems by the end of 2020.
But there are differences of opinion. Also at TOC Asia, Jeremy Nixon, CEO of Ocean Network Express (ONE), said he believes the container shipping industry will be able to live with the cost of low-sulphur fuel once market forces come into play to increase supply and lower the price. The “real cost” of producing the low-sulphur fuel, said Nixon, is US$75/t more than conventional bunkers.
When it comes to scrubbers, Nixon described ONE’s limited investment in these systems as “hedging” because “we are not great fans of scrubbers”. He explained that they are complex, and ONE believes it is better to take the sulphur out of the fuel than to try and remove it from the exhaust in a complex treatment process. ONE will have scrubbers on vessels in 2020, on both owned and leased tonnage, but the total number will be “no more than 10”, said Nixon.
He is not alone in thinking that the cost of low-sulphur fuel will fall. Addressing the Moore Stephens Singapore Shipping Forum during this month’s Singapore Maritime Week, Douglas Raitt, research consultant at Lloyd’s Register Asia, said: “Most shipowners that have invested in scrubbers have assumed that compliant fuel oil products will trade at price premiums of over US$200/t, and at this price pread, they can recoup their scrubber investments within a year, depending on daily fuel oil consumption. But that assumption is challenged by a much narrower price spread between high-sulphur fuel oil and very low-sulphur fuel oil in today’s market, and the economics of scrubber investments don’t stack up. This situation does not bode well for further scrubber investments.”
LNG and dual fuel
In terms of other options, CMA CGM is keen and certainly the most advanced when it comes to using LNG. The Marseillesbased line already has a number of dual fuel (HFO/LNG) ships in its fleet, including four 1,400 TEU capacity vessels acquired through its takeover of Finland-headquartered Containerships in 2018. Containerships Nord completed its first LNG-fuelled voyage between Rotterdam and St Petersburg in late January/ early February of this year.
CMA CGM’s order book for dual fuel tonnage is also impressive, with nine 22,000 TEU ships contracted in 2017 and five 15,500 TEU vessels earlier this year. However, according to Nicolas Sartini, CEO of the group’s APL operating arm, the widespread adoption of LNG will remain very limited for the foreseeable future.
Speaking at last year’s Singapore International Bunkering Conference, he said: “The viability of ships using LNG as a fuel depends very much on the worldwide network of LNG bunkering infrastructure, and that is very much in its infancy. While we are happy to see that countries such as Singapore, Japan and the Netherlands are investing in LNG bunkering infrastructure, we have not seen any significant developments to suggest LNG will run to a global scale for it to be a viable solution for 2020.
“To replace a large-scale fleet with LNG will require large scale investment and take a long time. As a group, we operate 500 vessels, and our LNG vessels will be a very small portion of this.”
Retrofitting ships to run on LNG is also unlikely, given the costs involved. Only Hapag Lloyd has opted to do this to date, and only for a single ship (the 15,000 TEU sajir) in a series of 17 LNG-compliant vessels inherited from its acquisition of UASC. Richard von Berlepsch, managing director of fleet management at Hapag-Lloyd, said the move was being made so that “Hapag-Lloyd could learn about the technology and whether it could pave the way for large ships to be retrofitted to use this alternative fuel in the future”.
The German carrier is also fitting scrubbers on 10 of its 13,000 TEU Hamburg-class ships so that it can monitor and evaluate this system and its cost implications.
Nonetheless, investment in LNG bunkering infrastructure is taking place. Partly, this is attributable to bodies such as the 12-member LNG Port Focus Group, which is led by the Maritime and Port Authority of Singapore, and the Oxford-based industry coalition EA\LNG (see box story, p39), which is promoting the fuel.
Meanwhile, Maersk Line, which has a plan to be carbonneutral by 2050, has been investigating a raft of green fuel initiatives, investing about US$1B in the process. Recently, the world’s leading liner company joined forces with the Dutch Sustainable Growth Coalition (DSGC), comprising Friesland Campina, Heineken, Philips, DSM, Shell and Unilever, to trial the use of second-generation biofuels on one of its 18,000 TEU triple-E ULCVs.
The plan is to sail the vessel using biofuel blends on a round voyage between Rotterdam and Shanghai, a distance of 25,000 nautical miles. Maersk estimates that the experiment will cut 1.5M kg of CO2 and 20,000 kg of sulphur emissions compared with sailings using HFO. The biofuel being burned in this pilot programme is used cooking oil.
Commenting on the carrier’s latest initiative, Søren Toft, COO of AP Møller-Maersk said: “To reach our net zero CO2 target by 2050, in the next 10 years we need big breakthroughs. Maersk cannot do this alone, and that is why we have collaborated with DSGC and its members. This is such an important step in identifying and bringing low-carbon solutions to life, and it has laid the foundation for how cross-industry partners can work together to take steps towards a more sustainable future.”
The Maersk executive believes biofuel is a viable option in the short to medium term while other more sustainable solutions are assessed. Its main advantage is its adaptability to be used as either a replacement fuel or as a blend with existing fuel oils without having to carry out significant modifications to engines.