The upcoming sulfur cap will have a huge impact on the global maritime industry. From January 1, 2020, the limit on the sulfur content of ships’ fuel oil will be 0.50% m/m. This is a significant reduction from the current limit of 3.50% m/m. The new regulation intends to reduce air pollution, clean up the environment, and provide tangible health benefits, especially for populations living close to ports and major shipping routes. However, ship owners need to consider how they will meet the requirements—and this is a very complex task. Below are a number of available options. Choosing the right one depends heavily on vessel type, vessel size, and variable factors such as fuel price and availability.
The shipping industry is faced with several options ahead of 2020, with no silver bullet solution.
Low-sulfur fuel: A simple swap?
The most straightforward solution for compliance is to switch to fuels with a lower sulfur content, such as marine gas oil (MGO) or ultra-low sulfur fuel oil (ULSFO). These automatically comply with the new limit. However, there are several important considerations to be made before choosing this option. Firstly, these fuels will cost an additional $150 to $250 per ton, according to industry experts. There is also the question of availability: although the supply of MGO has proven to be sufficient so far, the consultancy group Wood Mackenzie predicts a surge in demand in 2020. This will put pressure on refiners to increase run rates to unprecedented levels.
Achieving compliance with scrubbers
Vessels will still be allowed to use heavy fuel oil (HFO) after 2020. But to comply with the sulfur cap, ship owners will be required to install an exhaust gas cleaning system, commonly known as a scrubber. As of May 31, 2018, 983 scrubbers had been sold—and this figure has since risen to well above 1,000. This growing popularity is largely due to concerns about the price and availability of low-sulfur fuels. However, scrubbers can be complex to install, and the initial investment is considerable. According to Seatrade Maritime, the systems cost between $5m and $10m per vessel. There will also be additional operational expenses to consider, as the systems require maintenance and increase power consumption. While scrubbers seem to be growing in popularity as the compliance deadline draws closer, retrofitting might not be a feasible solution for all vessels.
LNG and other alternative fuels
LNG is a promising green fuel for the future of maritime, and it is likely to gain traction as the sulfur cap enters force. In addition to being a sulfur-free fuel, it also offers a significant reduction in NOx and CO2 emissions. In the long term, LNG seems to be the most attractive option. However, for the fuel to truly take off, there will need to be extensive development of LNG bunkering infrastructure. Moreover, the costs involved in retrofitting existing ships to run on LNG are extremely high, as the operation is complex and requires significant modification of engines. For this reason, LNG is a more viable option for newbuilds—but even then, building an “LNG-ready” vessel takes time.
Although most other alternative fuels are still in their infancy, they show promise for the future. These include methanol, biofuel, and hydrogen, as well as fuel cells. DNV GL has conducted a study into the price, availability, regulatory challenges, and environmental benefits of these alternative fuels to help the shipping industry prepare for the upcoming sulfur cap. In any case, each option for compliance comes with its own benefits and challenges—and ship owners will need to choose their solution on a case-by-case basis.