IMO 2020 and beyond
29 October 2019
21 May 2019
Lloyd’s Register gives a view on industry preparedness and the challenges that remain
As marine industry stakeholders decide on the best ways to meet the 2020 International Maritime Organization 0.50% sulphur cap, Insight talks to Tim Wilson, Principal Specialist for Fuels, Lubes and Emissions at Lloyd’s Register, about his views on issues arising from the new legislation and the cross-industry cooperation that will be needed to address them.
Lloyd’s Register (LR) is an international provider of classification, compliance and consultancy services to the marine and offshore industries and is very much involved in helping its customers to make a smooth transition to the new sulphur levels mandated from January 1 2020. Specifically, LR’s Fuel Oil Bunker Analysis and Advisory Service (FOBAS) team, who provide ship operators and managers with independent verification of fuel quality, have, for over one year, been specifically monitoring the quality parameters of the 0.50% fuels to set a baseline understanding of composition and compatibility for the industry. As Tim explains, the shipping industry has a number of ways to comply. “There are a number of available options for shippers, the main one being to switch to 0.50% maximum low sulphur compliant fuels, however they also include: running on high sulphur heavy fuel oil (HSFO) with an exhaust gas cleaning system (scrubber), using liquefied natural gas (LNG) or even, to a lesser degree, using alternative energy sources such as bio-products, sustainable bio-fuels and electricity,” he explains.
Quite clearly, the compliant fuel option is the one that's going to be dominant. And 95% of the world's fleet will go down that route; it might shrink to 90% as we go into 2020. And the price differences between the high sulphur fuels and the compliant .5% sulphur fuels, makes it attractive to larger ship operators to put an exhaust gas cleaning system on. When they can see the return on investment, it might be one or two years, possibly three, then they would still consider going down that route, because where money is saved, money is earned.
For the 3-5% of ships expected to choose the HSFO plus scrubber route, there is no maximum limit on the fuel sulphur content, which could provide a small outlet for high sulphur refinery products. “There may possibly be 50 million tons per year demand for HSFO in the early months of the implementation, which means major bunker ports, with greater capacity for storage will continue to hold HSFO stocks to meet the demand. However, smaller ports may not have sufficient storage capability to maintain stocks, and it may not be commercially viable to meet sporadic demand. So, it will be quite a challenge for fuel suppliers to get it right.”
With the shipping industry facing a number of challenges in addition to emission reductions, including trade tensions and high capacity availability, shippers are looking for every opportunity to reduce costs and improve margins. This makes the cost of compliance with the International Maritime Organization’s (IMO) 2020 regulation a topic that is receiving considerable industry attention.
The industry as a whole is very strong-willed to be compliant. And talking to a wide range of ship owners, their intent and their will is to be compliant. The question is, it's driven by commercial pressures as to when do they actually start using .5, and how close can they get to December 31st before they have to use .5. Why do I say that? It's going to cost them more. It's a more costly fuel than the fuel they're using today, whether it's $100, $200, $300 a ton more costly, multiply that by the number of tons they use, which could be anything from 30 to 200 tons a day. It's a significant decision as to when to make the switch over.
As Tim points out, “We are in a transitional phase right now and by January 1 2020 everybody should be ready and transited onto 0.50% sulphur. However, there is another option for shippers, which is not to comply at all, whether that is a commercial decision, based on fuel costs or just a risk-based decision taken on the probability of being caught. In addition, availability of compliant fuels of acceptable quality is another big question, with all these factors in play, I think some level of non-compliance is inevitable as we go through the implementation period.”
Currently, industry estimates for non-compliance vary widely, with some reports suggesting it could be as high as 15% initially. “Whether it's deliberate or by accident, or by sheer fact that 0.5% fuels were unavailable, we expect some level of non-compliance and, with over 50,000 ships having to make the change in the market, not every ship can be checked. However, where compliant fuel availability is the issue, non-compliance can be avoided by using the IMO procedure that allows ships to load high sulphur fuel providing they put in a ‘fuel oil non-availability report’, stating which port did not have a compliant fuel available and providing sound evidence to support the decision. We see some level of confusion in respect of what ‘not available’ means. Does it mean ‘it's not suitable for my engine’, or just that the sulphur content is too high? This level of detail is still being discussed in IMO, so that the fuel non-availability reports can be used effectively in the market. I expect that although there will be some non-compliance, with proper enforcement, as the industry settles over time, this should whittle down to a much lower percentage.”
However, it's not solely a shipping issue, the bunker network has significant logistics changes to make in the coming months.
We anticipate the major ports will have the fuel; this is not an issue. But some of the more remote bunkering ports may be struggling to have changed their storage tanks and prepare to put .5 in. And they'll be waiting, like ships, to the last minute to do that because they had to get rid of the high sulphur fuel. And that brings another issue. We have essentially 250-million tons of high sulphur fuel sitting in the storage tanks that nobody wants. The supply industry has a massive undertaking to make the switch. Ship operators may consider that theirs is the bigger problem, and certainly for a ship, he has problems, we acknowledge it; but with care and attention, and planning, it's manageable.
But the supply industry has to make some very tough commercial decisions on when they clean their tanks out, do you take lower sulphur fuel, clean their pipes out, prepare their barges. When do you do that? When are they going to stop ordering high sulphur fuel? And it's possible the supply industry will dictate more than the shipping industry itself in a demand side.
With the limit set at maximum 0.50% sulphur, Tim suggests that suppliers will need to be very careful to ensure the fuel they supply does not rise above that level. “The supply chain itself has got some preparation to do. The fuels in the tank should be slightly lower than 0.5% so that the fuel delivered to the ship is compliant and has not been contaminated by high sulphur fuel that's still remaining in the tank and supply lines in the ship’s manifold.”
In addition to the shipping and bunkering organisations, Tim says IMO 2020 will have significant impacts on the refineries. “The marine industry has been a convenient drain valve for some 300 million tons of residual fuel, with some refiners around the world depending on this market to consume the end product of the refinery process. In 2020 the demand for residual fuel from the marine industry will drop considerably, possibly by around 150 million tons, being replaced by the greater use of distillate fuels in order to meet the low sulphur limits; the big question then is where is it all going to go? Some refineries, where they do not have the more complex means to crack the remaining residues, may close and others are choosing to invest in more complex coking plants to break the residues down further into distillate products. What seems clear however, is that these 0.5% sulphur fuels will be widely variable in their composition with formulations ranging from the familiar higher viscosity residual fuel grades down to the straight distillate marine gas oils. Further to this, and we are already receiving announcements by the oil majors on their 0.50% fuels contribution to the market, we will see carefully engineered fuel blends from various low sulphur refinery streams being used, adding to the wide range of 0.50% fuel offerings.”
Helping to understand and resolve fuel quality issues is an area in which Lloyd’s Register is particularly active. “We sit on a number of related technical committees including: the marine ISO 8217 standard TC28 SC4 WG6 working group and the associated technical committees the CIMAC Working Group for fuels. LR is also actively involved in the Marine Environmental Protection Committee through related non-government organisations and the International Association of Classification Societies (IACS). In addition, we aim to guide the shipping industry in understanding the challenges that the fuels will present to ships if they do not meet the specifications as ordered. LR’s consultants are well placed to help with questions particularly around availability, compatibility and stability, and we need to be in a position to answer them.”
Of course, the big question is, well, what do these fuels look like? What do I need to be worried about? What is it I have to change? Surely, it's just a diesel I'm getting on, but it's .5. And to put it very simply, there are three aspects of the fuel formulation, or quality, as some people like to call it, that they need to be very aware of. And there's been a lot of talk about this. First and foremost, is the variability of the fuel viscosities that they may be supplied against the single order that they have today.
The other key aspect is of course, the stability of the fuel, and linked to that indirectly is the compatibility of the fuel supplied against another fuel they've loaded elsewhere. This has been the biggest conversational point in IMO, the compatibility. I can't mix fuels. The oil industry has warned the marine industry to be prepared for fuels that will not be easily predictable as to whether they can mix, or not mix. A supplier can't predict for you, specifically. But there are indicative tools out there which can help ships to understand this, and the laboratories can do the tests to determine whether a fuel is compatible with another one.
The third one is really the cold flow characteristics of the fuel. For most ships it's not really a big issue. But some ships operate in cold climate zones, and we will be seeing a lot more waxy paraffinic fuels coming to the market. They can have waxes in there that for like, for distillates, that will drop out at 20 or even 30° C that they will start to form wax. You can have pour points that at 30° the fuel will stop flow, and you can't move it. And it's very difficult to heat it and reverse that. So, and there are high-melting waxes that may be in the fuels, of light viscosity fuels, at 80°; you need to heat the fuel before you can get it out. Wax in itself is a great combustion product, and there's nothing wrong with it; it's just getting it to the engines, the handling of it.
Since it is not always possible for ships to segregate bunkers, Tim believes the industry needs to work to a new mindset in ordering bunkers, putting in a lot of forward planning, working with the charterers who buy the fuels and attempt to fill the tanks. “I think it is important for us to look at and consider persuading a 'fill only empty tank' policy, which could reduce problems by 80%. Although there will be a diversity and variability in fuels, it will be easier to manage them once they are on board ship. Work is ongoing to provide the ships with tools and methods to enable them to better define what can be mixed and to what ratio. We are confident that every support will be given to ships so they can make an informed decision to mitigate operational risk. But there's no magic bullet, or solution, to deal with this issue”.
But we believe as an industry that this is manageable, but all parties, all stakeholders, need to understand the implications of not taking this seriously. Compatibility's a big issue, but if you can segregate and avoid mixing during bunkering, then you've resolved that problem. You still have to manage it on board, but you don't have to manage it during bunkering. So, that's the main issue, some ships are not well designed and it may be time to build extra fuel tanks. It may be time to put coolers in; a little bit of investment will go a long way.
With a level of uncertainty still surrounding the quality and stability of future fuels the whole industry is learning about these new fuel formulations together. “This is not a ship's isolated problem; this is an industry issue, and every stakeholder is involved one way or the other.”
It's the first time I've seen so many from different parts of the industry really trying to work this through. We've got to get rid of our old coat and put on a new one, and say this is a new area for the bunker industry where we need to work together, we need to provide transparency from the supply chain to the ship.
So, I think what's coming on board, we should expect, a stable product that meets the regulation for SOLAS, for flash point, and meets the ISO 8217 standards. There's no reason why fuels can't do that.
The supplier, in discussing with the oil producer and the blender, should have confidence themselves that this fuel has been blended with products that are suitable for use on board a ship, for handling on board, and for combustion. And unfortunately, the commercial pressures and the nature of the market tends to lend itself to products that are to some degree unknown other than what they're supposed to be for a .5 fuel. But what the shipping industry wants is more cooperation, more understanding, of what they're going to get. Not on the day they get it, but before they get it, if they can. some say it's not possible, I say it's time to make it possible on that, because it's not fair to the ship operators. They're complying, and they expect a compliant product to come on board the ship.
It is going to be an interesting time ahead and, although Tim says some of the questions have been answered, there are many uncertainties that remain. “IMO is still working on the issues and at MEPC 74 the guidelines should be adopted, which means some of the uncertainty should come out. But, for the remaining questions it will be up to us, as operators, ship owners, enforcement agencies, suppliers and charterers, to communicate and cooperate with the intent to comply with the new emissions legislation. Why do I say this; for the better of our environment.”