2020 Sulfur Cap to Impact Credit Lines

The global sulfur emissions limit will drop to 0.50 percent in 2020, and most people are yet to appreciate what this will do to ship operators' finances. 

“The credit lines for fuel purchases will have to be expanded. Will suppliers and banks allow that?” asks Poul Woodall, Director for Environment & Sustainability at DFDS, the largest company combining short sea shipping and logistics in Northern Europe.

“If the gap between traditional heavy fuel oil and the new 0.50 percent product climbs to $400 as some are predicting, we are talking an extra bill to industry of $80 billion per annum.”

MarEx spok to Woodall to find how DFDS is meeting the challenges.

What do you foresee regarding financing challenges for fuels and lubes towards 2020?

By 2020, a new fuel will be the predominant in the marine industry. We know it will be a max 0.50 percent sulfur, but little has so far emerged about the type of product nor the likely price levels. Some pundits forecast a spread of up to $400 between the traditional fuel and the new fuel. In that case the additional bill for the operators/charterers will be significant. 

This additional cost will need to be financed until such time as that extra cost can be fully passed on to the ultimate customer. In other words, there might be an impact on the cashflow that companies need to consider. 

Fuel suppliers will also have to take a second look at their customer case in terms of credit risk -  will all existing customers be worthy of an increased credit line? Will the banks have a say?

Do you see the 2020 requirements heavily impacting particular market segments?

2020 is being talked about as a “global” cap – in fact it isn’t. There will be a few countries excluded, those who are not signatory. What about vessels to and from these countries, when do they have to be compliant with the 0.50 percent limitation?

How has it influenced your fleet decisions regarding scrubber installations?

As far as DFDS is concerned, the impact is limited, as we predominantly trade inside the sulfur emission control area (SECA) already. However, any impact this disruption will have to the oil markets will naturally also impact our company.

By selecting scrubbers as our compliance option, DFDS is able to continue using heavy fuel oil. This has a better overall environmental impact compared to using low-sulphur fuel, because the central production of MGO requires more energy than the cleansing of the exhaust gases through scrubbers. 

How have you managed scrubber installations on your fleet?

DFDS today operates 44 vessels, of which 38 are owned or bareboat chartered. Of this latter category, 17 are fitted with scrubbers. We have a further four newbuildings on order, two of which will deliver this year and two in 2019. The latter two will also be fitted with scrubbers.

Our first scrubber experiences started in 2009 when DFDS started to test the technology on Ficaria Seaways. This was the world’s first large scrubber on a freight vessel. The test results were promising as the technology performed better than just using MGO, marine oil with 0.1 percent sulfur content. In addition to cleaning the exhaust gas to levels below the limits set in 2015, the scrubber technology also captures about 80 percent of the particulate matter.

Years of testing and gaining experiences resulted in a large environmental investment program in 2013 for which DFDS set aside EUR 100 million ($109 million). Year after year, we installed scrubbers and environment-friendly systems on our vessels. 

In 2013, three vessels were fitted with scrubber systems followed by another seven in 2014 and a couple more in 2015. Today, the DFDS fleet is one of the largest in the world using this exhaust gas-cleaning technology.

Does energy efficiency play a role in reducing costs?

As well as having scrubbers, our newbuilds will be the most energy-efficient ships ever to sail in DFDS’ fleet, cutting energy consumption and emissions by more than 25 percent. The ships are the first to be built according to a new IMO-energy standard, which sets much lower limits for energy consumption and emissions in relation to the ship’s capacity and engine power.

The vessels are 40 percent bigger than our biggest ships now and will be fitted with a unique ramp system, so they can be loaded and discharged in a very short space of time. Along with the sheer size of the ships, this boosts their efficiency. 

What do you foresee for other air emissions?

NOx is already subject to regulation. By 2021, we will have a North Sea/Baltic Sea NECA. As this is our primary trading area, it will have an impact on ship designs going forward. 

I also believe that particulate matter and black carbon will be subject to some sort of regulation – not least in Northern Europe in the not too distant future. For this reason we are keeping a close eye on technical developments in this area and where opportune we try and assist with full scale testing.