Gas versus oil
Toughening of international requirements on marine fuel presents new challenges for Russia. RF Ministry of Energy is going to provide subsidies to manufacturers of low-sulfur fuel oil, Sovcomflot stakes on LNG, Atomflot calls for construction of nuclear-powered icebreakers while the global shipping community still says that “fuel” future is vague.
IMO’s global 0.5% sulphur cap comes into effect in 2020. The current limit is 3.5% with 0.1% limit in emission control areas including the Baltic Sea effective from 1 January 2015. According to recent plans, ECA is to be expanded to the Mediterranean area. There are also national restrictions in some regions (including EU waters, coastal areas of USA and Canada).
Those regulations present challenges for the shipping industry since using of conventional high-sulfur marine fuel is turning into a problem. To comply with new requirements it is necessary to use either fuel purification systems (scrubbers) or alternative fuels. The most popular among alternative fuels is liquefied natural gas (LNG) with methanol, biofuel, etc. being less widespread.
Scrubbers let use a cheaper high-sulfur fuel oil but features some disadvantages like high cost of such systems, their large size and the need to dispose of waste substances.
Besides, IMO is discussing further toughening of fuel and ship engine requirements related to NOx and GHG emissions. The initial GHG strategy was adopted by IMO’s Marine Environment Protection Committee (MEPC) in April 2018. In late October 2018, MEPC decided to start consideration of issues related to short-term measures on reduction of GHG emissions in 2019. By 2030, CO2 emissions from seaborne transport is to be reduced by 40%.
When speaking at the industry focused conference “Maritime and River Transport as a System Element of the Backbone Infrastructure” in Moscow, Sergey Frank, President & CEO of PAO Sovcomflot, said: “In five-six years we will face restrictions on GHG emissions (CO2) that will overthrow substandard solutions like scrubbers”. That is why Sovcomflot puts a stake on LNG as a marine fuel.
The plans of Sovcomflot are aligned with the state policy in the Arctic - Russian President Vladimir Putin earlier expressed his support of using LNG as ship fuel instead of oil products.
However, Vyacheslav Ruksha, head of FSUE Atomflot believes the Arctic cannot be developed without involving nuclear power because Commercial speed of 10-12 knots is needed for economically efficient shipments of cargo along the Northern Sea Route. According to him, “there is nothing to do” on the Northern Sea Route with icebreakers of less than 40 MW in capacity.
On the other hand, there is no consensus of opinion concerning the most popular fuel in the future in the shipping community.
Different opinions were expressed in Hamburg at SMM-2018.
When opening a dedicated session, Christian Lelong, Senior Commodities Analyst, Goldman Sachs, said: “We are becoming more positive on scrubbers; production capacity is increasing and may surprise us. In a perfect world the industry would have made investments over a time longer period than two years. Any more regulatory uncertainty will mean we will not get the lowest cost solution for the economy but the market will eventually balance.”
Aaron Bresnahan, Vice President Marine Solutions, Wartsila, said: “The technology will be available for whatever choices shipowners make. We support LNG even though its adoption has been slowed by the classic chicken and egg problem of supply and demand. Some of the recent choices by big shipowners have been a step forward because we will need LNG infrastructure to service bigger ships.”
Paddy Rodgers, Director and Chief Executive Officer, EURONAV, said: “Scrubbers are not a license to burn fuel oil. You are compelled to monitor and report what you do. I think we are heading into territory similar to the oily water separator regulations where you could be penalized regardless of the fuel burnt. The idea that scrubbers are a ticket to ride is a misnomer.”
Wolfgang Hintzsche, Marine Director, German Shipowners’ Associatio, said: “This is one of the biggest challenges that shipowners have to contend with but I am fully convinced that industry will do its utmost to be compliant. How big the challenge is and what the costs will be we can only continue to speculate, before we talk about what fuel we will use in the future. “
Lars Robert Pederson, Deputy Secretary General, Bimco, said: “MARPOL contracting governments will need to do what they committed to and take action when the fuel supplied is not what is specified. I think the problem in 2020 is going to be the quality of blended fuel and we are bound to see more cases of fuel quality issues.”
Kirsi Tikka, ABS Executive Vice President and Senior Maritime Advisor, said: “This regulation will have the biggest impact on the industry since the phasing out of single hull tankers. This will be felt well beyond shipping, affecting the refining and power industries as well as ultimately consumers. We heard today how the industry is still some way off understanding the full impact the 2020 regulation will have and how to make the choices that will work best for them.”
One of the world’s largest shipping companies, Maersk Line, earlier said that additional cost for the global container shipping industry to comply with IMO’s 2020 sulphur cap could be up to USD 15 billion.
It should be noted that some refineries in Russia produce low-sulfur fuel oil (ULSFO) for bunkering of vessels in the Baltic Sea. Its sales are growing with the demand for this fuel expected to surge after 1 January 2020. To prevent the deficit of ULSFO RF Government is going to provide subsidies to its producers in the framework of the tax manoeuvre. As Pavel Sorokin, Deputy Minister of Energy of the Russian Federation, told IAA PortNews, the subsidy will be as high as RUB 1,000 per tonne. In the Far East of Russia it will be even higher while sulfur content requirements will be not as tough as in other regions. According to Pavel Sorokin, no deficit of low-sulfur fuel is expected in Russia.
The key factor determining the development of LNG bunkering in Russia is the access to resources. As the most of cargo shipments will be carried out in the Arctic with LNG making the bulk of them, the choice is evident.
Russian ship owners see LNG as the fuel of the future. “The shift to LNG fuel for ships will become a real alternative to conventional fuels, diesel and fuel oil. In my opinion, the use of new technologies in shipping, aimed at using LNG as marine fuel, will contribute to the development and improvement of technologies in shipping, shipbuilding and the Russian gas industry”, Alexei Klyavin, President of the Russian Chamber of Shipping, said at the 2nd LNG Fleet and LNG Bunkering in Russia Conference organized and hosted by IAA PortNews.
The use of LNG by seaborne transport in Russia is hindered by the lack of bunkering infrastructure and special bunkering ships since temporary schemes like truck-to-ship bunkering do not ensure required speed of bunkering when the volumes are huge.
According to Sergey Frank, it would be reasonable to create infrastructure for LNG bunkering at the ports of the Baltic Sea, in Murmansk, Sabetta and on Sakhalin, that is the ECAs and on the key points of the Northern Sea Route, where the resources are already available.
Earlier, there were proposals on creation of LNG bunkering centers on inland waterways for vessels of sea/river navigation. Yet, that is the issue of long-run prospects. If ECA is approved for the Mediterranean such points can be in higher demand than today.
Among the projects that can be implemented in the nearest future there are two small LNG plants at the port of Vysotsk (Leningrad Region) that are to be launched in late 2018 and used particularly for bunkering of vessels. They are Cryogas-Vysotsk and Krasnoye Sormovo Portovaya.
Russia also has its own designs of different LNG bunkering tankers developed by Krylov State research Center.
In fact, some of issues are not clear. Among them are the following: Which companies will be entitled to supply LNG as bunker fuel? What kind of antimonopoly policy will be in this segment? Will there be any price regulation?