Scrubbernomics, clean fuel (and the much bigger picture)

May 22, 2019

Almost everything is known about the IMO2020 sulphur cap, except all the stuff that no-one knows: the hi-lo price spread, availability and quality of compliant fuels, the efficiency of scrubber use on ships and the long term implications for the environment.

What is clear is that, while the revision of Marpol Annex VI to include scrubbers as a means of compliance continues to be divisive, it ultimately reflects standard shipping industry practice. Like the use of LNG as fuel, scrubbers are a means to an end, not an end in themselves.

Research by The Strategy Works presented at the recent Riviera Maritime Media SulphurCap2020 event in Amsterdam suggested that even among a majority of owners and operators who planned to adopt compliant fuel, scrubbers would also be fitted to some ships.

Owners remain concerned about whether compliant blended fuel will be reliable enough in operation to be used safely and whether doing so means locking into a single supplier big enough to serve all ports.

The research, which included the complete shipping supply chain, certainly suggests that LNG as fuel will remain a minority interest – cost and complexity have seen to that – apart for its suitability for the cruise sector.

The apparently ‘simple’ scrubber solution is certainly appealing – DNV GL estimates that 3,200 have been installed to date, more than it had anticipated, the majority of these are open loop with discharge of treated wash water direct to the ocean.

Strategy Works’ Michael Herson said scrubbernomics were driving demand – with current estimates of a $100-200 hi-lo price differential but stresses “this is a bet. Nobody knows what the spread is really going to be. But the scrubber business case is compelling in terms of getting your money back so it has penetration from cruise to merchant ships”.

The result is that ‘everyone is trying to go through the same door at the same time’ according to one manufacturer. The charterers have also found their voice, choosing scrubber-fitted tonnage that enables them to pocket potential fuel savings.

Equally instructive were responses on energy saving; what comes next in terms of regulation and how to manage the much bigger jump from clean conventional fuel to decarbonised alternatives.

With NOx emissions now considered to be managed under the Tier III requirements, the comments indicated the EEDI was providing an effective means to save fuel and lower emissions, with vessels trading progressively more slowly. But with the 2020 horizon visible, the bigger question is what happens next, when the industry attempts to decarbonise its fuel stream.

In terms of alternative fuels, survey respondents were clear that beyond small scale ferries, battery power doesn’t have widespread future application as main propulsion but that hydrogen currently heads the popularity contest despite its vast cost, cryogenic characteristics and lack of regulatory permissions.

Biofuels are considered an option but many owners don’t think there will be enough available as they will need to compete with land and aviation transport modes as well as for food use. Of the practical alternative fuels, Ammonia was considered among the most popular together with Methanol, which is already in use and widely available, though challenged in terms of cost.

Interest in complementary vessel technologies such as Flettner rotors is gathering momentum but it is clear there is no binary solution and certainly no silver bullets. Some continue to believe that carbon pricing will be required since shipping will be required to compete even for renewable energy sources. “The pressure is going to come sooner than expected, shipping is not immune from events on land,” Herson said.

For any watcher of the regulatory process, he had salutary news in the form of developments in China, where unilateral emission control areas are being imposed, but using a combination of stick and carrot. By insisting that vessels burn 0.1% sulphur fuel in the Pearl River Delta, the Bohai Sea and Hainan Islands the ministry of transport is offering port dues reductions, shore power at preferential prices and even the cash differential between 0.1% and 0.5% sulphur.

Hardly a strategy one can argue with, but Herson contended that soft power would increasingly have a role to play in both funding and regulating the shipping industry. Banks and private investors are already prioritising funding of lower emission vessels and the message from central banks is that climate risk needs to be assessed across the whole financial system.

To achieve anything like the 2050 reduction levels mandated by IMO will require one thing above all: collaboration. Research and development of the required alternative fuels will require the combined input of producers and OEMs, academia and class as well as membership organisations to drive the message home.

That message is that 2030 – the IMO deadline by which the industry must reduce carbon emissions by at least 40% from 2008 levels – is not far away and the threat ranges from severe shipping cost increases to the ‘dematerialisation of shipping’ with local impacts to manufacturing which could permanently reduce demand.

Herson pointed out however that the trend was moving towards greater monitoring and management of maritime assets, which suggests that the industry will become more organised along the supply chain, itself a big potential contributor to carbon reduction.

In addition to ground level techniques such as traffic management, the increasing availability of geospatial data will play a greater role in surveillance and monitoring of vessel traffic operations and performance.

Companies including Airbus and Planet (which includes Google among its investors) have already launched or tasked satellites to collect vessel position data, routes and speed and using algorithms determine patterns in vessel traffic. Detection is reportedly accurate to 3m and includes not just ports but open waters. As Herson observed, “this could mean the end of the wild west in shipping” where an asset, cargo and all disappears over the horizon and re-appears only at the next port.

Whether that proves entirely true is perhaps too early to say, but an increasing number of interested parties – commercial, governmental and societal – will be focussed on shipping’s environmental performance and watching closely for improvements.