Oil Prices Impact ECA Compliance Solutions

By Swati Pathak

An analysis of the announcements made by 70 companies on how they are meeting this year’s 0.1 percent sulfur requirements in Emission Control Areas reveals divergent trends among ship types.

The 70 companies represent 10 from each of seven categories:
 
•    short sea container 
•    deep sea container 
•    passenger 
•    ro-ro 
•    general cargo 
•    bulk carriers, and 
•    tankers. 

Collectively, they own a fleet of around 5,000 vessels, and 55 of the 70 have disclosed their compliance strategies publicly. 

Scrubbers

Passenger and ro-ro companies have moved decisively towards scrubber technology with 75 percent of the assessed companies voting in favor of the technology. Top investors in the technology are Brittany Ferries (approximately $500 million), Carnival Corporation ($400 million for 70 vessels), DFDS (more than $150 million) and Royal Caribbean Cruises (15 vessels), using technologies from Alfa Laval, Wärtsilä, Belco Marine and Yara Marine (formerly Green Tech Marine). 

The global oil price drop seems to be impacting scrubber adoption negatively. The orders nearly doubled for the six months between April and September 2014, while in the last four months growth has only been around 19 percent. The vessel count opting for scrubber technology stands at 160 as of January 31, 2015, compared to 135 in September 2014. The single largest order was from Royal Caribbean Cruises in December 2014 for the retrofitting of 13 of its vessels. The deliveries are scheduled between 2015 and 2017.

LNG and Other Alternative Fuels

LNG as compliance fuel is being considered by 20 percent of the companies studied, mostly passenger vessels. Top investors include Universal Marine, BC Ferries and Fjord Line. 

A 13 percent rise has been recorded in LNG-fuelled vessel orders in the last four months. As of January 31, the confirmed order book stood at 78 against 69 in September 2014. The key contributor to the order book has been container ships with 125 percent growth and 10 orders over the period. 

Concerns regarding the availability of bunkering infrastructure and the global oil price drop (around 50 percent since September 2014) are the key inhibitors to the technology. There was an important order cancellation in October 2014 from Brittany Ferries for four vessels (three retrofits and one newbuild).

Various other alternative fuels are also being discussed. Exxon Mobil’s low-sulfur fuel oil blend HDME50 is being used by vessel owners in the Amsterdam, Rotterdam, Antwerp (ARA) region. Lukoil and Cepsa have also come up with low-sulfur blends. Stena Line has considered methanol for its cruise ship Stena Germanica, scheduled for 2015. 

Biofuels, ethanol and fuel cells as marine fuel are also being studied although the growth prospects seem limited due to availability, safety and compatibility related risks.

MGO

Marine gas oil (MGO) has been the fuel of compliance for the vast majority of companies analyzed, especially for container ships, bulkers and tankers. Key investors in the technology are Maersk Line, MSC, Eimskip, Tallink and Hurtigruten. The attractiveness of the fuel lies in companies’ prior knowledge of it, the minimal investment in vessel infrastructure, a well-established bunker supply chain and favorable oil prices.

In the wake of oil price uncertainty, we might expect the reduced activity in terms of adoption of other technologies such as scrubbers and LNG to continue. However, when the global 0.5 percent sulfur limit enters into force in 2020 or 2025, there will be fuel supply concerns as well as price concerns. – MarEx

Swati Pathak is a senior analyst at MEC Intelligence. 

Editor’s Note: The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.