As ships risk “Unseaworthy” rating, warns IMO, bioenergy is a key to saving them

December 11, 2017 |

By Ron Cascone, Principal, Nexant, Inc.
Special to The Digest

Reuters reported on November 16, 2017 an International Maritime Organization (IMO) declaration that ships not meeting stack sulfur emission limits through reductions in the sulfur content of their fuel or by installing scrubbers risk being declared “unseaworthy”. Ship owners and refiners are in a quandary about how to comply with the IMO rules finalized last year requiring shippers worldwide to cut sulfur emissions from 3.5 percent to 0.5 percent by 2020. The IMO stated that there would be no delays or exceptions in enforcement, whether or not the industry takes the necessary steps for compliance. It warned of the consequences that all stakeholders face if they do not comply, that non-compliant ships considered “unseaworthy” would have their charter affected, and also indemnification for insurance claims. However, enforcement of the global sulfur regulation is handled by individual countries acting as either flag states or port states, and no one can predict how the enforcement will play out when push comes to shove.

As seen immediately below and in the next chart, bunker fuel sulfur limits have been reduced drastically the past seven years to 0.1 percent now and in the future in the Sulfur Emission Control Areas (SECA or sometimes ECA), which include Europe’s Baltic and North Seas, and more recently areas within 200 nautical miles of the U.S. and Canadian coast, and the global cap will be 0.5 percent in 2020.

The Reuters story says that the IMO is to hold sessions in February and later in 2018 on “how to ensure consistent implementation.” An IMO panel approved a rules amendment to require suppliers to certify, starting on January 1, 2019, that the bunker fuel supplied is under the sulfur limits, or that the ships have scrubbers, or have an official exemption. Few ships have so far opted to install the costly scrubbers, which would allow them to keep burning high-sulfur fuel oil, meaning sellers will be under pressure to reduce the price of high sulfur fuel, and refiners and distributors will have to make adjustments. The market will definitely get very tight for low sulfur diesel and marine gas oil that will likely be blended with higher sulfur fuels to achieve sufficient volumes, with a fly-up in prices of low sulfur fuels. One outcome could be that suppliers would finance installation of scrubbers to be able to continue selling their production of high sulfur bunkers.

The Digest has been following the developments around the IMO global sulfur rule since at least 2011, and most recently with, “Singing a song in Singapore: GoodFuels Marine, BHP, and MPA collaborate on biofuels during closed-door roundtable”, September 24, 2017, by Helena T. Kennedy. This title raises nostalgia over the 1991 off-broadway hit musical, “Song of Singapore”, an old-movie parody about the drama there during the Japanese invasion at the outset of WWII.

Technologies to Meet New Bunker Fuel Specifications

At the risk of mixing metaphors, this IMO regulatory drama is an impending “train crash”, which Nexant has studied in its recent report, PERP 2017S7: Technologies to Meet New Bunker Fuel Specifications, June 2017.   As with aviation, shipping is a global issue, except that many more diverse solution options are feasible. This report reviews in-depth the history of marine fuels (“bunkers”), the IMO rule, the technology options available to refiners to provide compliant fuels, the shipowners’ options for stack gas scrubbing, and LNG bunkering. The report evaluates practical issues, economics for each solution over a wide spectrum of geographies, and world markets. It looks at conventional and advanced technologies to make compliant low sulfur fuels. It also looks at wet scrubbers, dry and membrane stack sulfur removal, and other options. The report analyzes engine technologies as relevant to low sulfur fuel utilization and other issues. Nexant is also doing single client consulting to dig even deeper into these subjects.

The two primary parties among the number of affected ones in this regulatory / technological / economic / strategic stew are the petroleum refiners and the ship owners, whose interests could largely be at odds. Not all countries of registry of ships are members of the IMO. Will they largely be simply co-victims or antagonists? No one can really predict if this apparent stalemate could be broken by various parties pressuring the IMO to relax limits and/or deadlines. Could the bio-economy also help relieve the pain?

Most of all the goods we consume are on ships at sea at some point in their supply chain, and certainly internationally traded commodities and manufactured goods are. In addition, passenger ships and ferries are important world-wide, the latter especially in archipelago nations like Indonesia and the Philippines, or in virtual archipelagos like the Baltic nations. Not to mention the very profitable vacation cruise industry. Most of us don’t take the Queen Elizabeth II (or her Mom, the RMS Queen Mary) to Europe any longer, but I’ll bet you or someone you know has taken a leisure cruise (Alaska, Hawaii, Caribbean, etc.). Therefore, you and/or your family and friends are further affected.

The Scrubber problem

Again, the solutions available to meet the IMO rules promulgation are onerous, challenging, and expensive.   The maritime industry is hard-pressed to invest in such solutions as scrubbers, so has been reluctant so far to commit to this solution.

Scrubbers are difficult to install on shipboard, require expert operators and maintenance people to be trained or added to the crew, and if they have operating problems, may render a ship “unseaworthy” until they are fixed. The overall scrubber systems, including liquids associated, could take up much valuable shipboard space that could otherwise be used for cargo, on e.g., a container ship, and may be out of the question on a cruise ship or other specialized craft.

Heavy, high sulfur marine bunkers have been the “junkyard” of the petroleum refining industry since ships stopped burning coal between WWI and WWII. Initially, ship powering technology continued to be primarily steam boilers fired with petroleum fuels rather than the previous model of coal boilers driving steam engines. These boilers could tolerate nearly any kind of heavy, viscous, sulfurous liquid fuel, and since most fuel is burned on the high seas, society did not push back. Eventually, however, diesel-type internal combustion engines and even some turbine-type systems took over. These require cleaner, higher-specification fuels. Eventually, governments around inland seas such as the Baltic and Mediterranean developed regulations to upgrade the fuel specifications further with respect to limiting stack sulfur emissions.

Among other developments, this led to an interest in LNG bunkering in the Baltic and Scandinavian countries, especially along the fiord-riven coast of Norway, for local transports and ferries. However, this solution is more challenging or even impractical for international shipping with variable ports of call. This is analogous to the dynamics of alternative fuels being implemented for local trucking, taxis, and buses, versus passenger cars and highway trucking (the classic alternative fuel “chicken and egg” problem). Nonetheless, it is reported that about 120 LNG-fueled ships are in operation or on order globally.

While low-capital solutions are generally preferred by the ship owners (no surprise), it seems that on the other hand, refiners are hard-pressed to produce and distribute low sulfur fuels, globally, in time to meet fuel performance specifications on engines. Fuel supply logistics are also challenging, if, for example, LNG were to be embraced as a wider solution, as well as more mundane concerns for potential problems in mixing existing hydrocarbon fuel inventories with low-sulfur diesel gas/oil mixtures that refiners might provide.

The biofuels option

Now, besides the US Navy and other navies, all of global commercial shipping will have to become a “green fleet”. We see this as a potential opportunity for biofuels, especially biodiesel and HVO (hydrogenated vegetable oil, or renewable diesel), DME (fossil or bio), and perhaps upgraded biomass-based bio-oil. For the most desirable solutions of biodiesel and HVO, there is not enough natural seed oil and animal fat to make much of a difference without a break-through like development of leaf-oil (e.g., by Australian CSIRO and others).

DME is another longer-tern zero-sulfur solution. It has roughly the properties of LPG, except that it has a high cetane number (average of 58 versus diesel’s average of 49), making it an ideal diesel engine fuel, but it has 54 percent the energy density of diesel fuel.   Its energy density is also only 13 percent lower than LNG, but 24 percent higher than methanol. DME can be stored similarly and as easily as LPG for re-fueling and on-board (but not the same as for liquid fuels like diesel), in tankage that is cheaper, and that is much less challenging than, say, for storing and handling LNG. New and larger tankage for DME and logistic challenges would need to be weighed against the cost and space requirements for scrubbers. DME is a way of exploiting and monetizing the enormous and relatively inexpensive world supply of methanol, being based on a number of lower cost, abundant natural gas resources in North and South America, Africa, the Middle East, Pacific Rim, etc.), and its logistic ubiquity.

Technologies are being developed to “activate” (convert) CO2 to renewable liquid biofuels such as methanol by utilizing “stranded”, or excess, renewable electricity. Nexant recently published a report, Biorenewable Insights: Carbon Dioxide to Chemicals and Fuels, which covers this subject, with more to come. DME is relatively easily and cheaply produced by dimerizing methanol. There are hyper-scale versions of this technology as well as small-scale for distributed generation (e.g., from Oberon Fuels).     Importantly, fossil-based DME supply can seamlessly be transitioned to bio-DME at any time in the future. Nexant has an excellent report on this subject, Biorenewable Insights: Methanol/DME (2015). Trucks and cars using DME are being developed by Volvo and others. Nexant is involved in huge study of DME implementation as an LPG substitute or blendstock in Asia. Oberon’s small-scale DME technology could be implemented in multiple ports, utilizing existing methanol, or produced from fossil methane or syngas, or bio-based feeds. On the basis of the global interest seen in DME as a vehicle and cooking fuel, a 5-10 year timeline for its availability in ports for bunkering is projected by experts.

Ron Cascone is a Principal in the Energy and Chemicals Advisory at Nexant, Inc. He is a chemical engineer with 50 years of experience in the process industries. Ron has led or assisted in many technical, economic, and business feasibility analyses and in dozens of finance due diligence assignments across a wide range of industries and technologies, and mostly of late, in renewable chemicals, fuels, and polymers technology developments and first-of-a-kind projects. Ron has a broad knowledge of the global chemical and energy industries, biofuels, renewable chemicals, and other bio-based materials, bio-based processing, agriculturally-related sustainable development strategies, and many other industrial and economic sectors. He has authored or advised on numerous Nexant multiclient reports first generation and advanced liquid biofuels, including by gasification, fermentation, pyrolysis and chemical conversion.

Ron majored in chemical engineering at Manhattan College and Columbia University. He has authored many published articles and conference papers and holds two US patents in synfuels.

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