More shipping companies are ordering scrubbers or equipping their ships so that they can use liquefied natural gas as fuel in order to meet the requirements by the International Maritime Organization to reduce sulfur in ship engine emissions.
Starting Jan. 1, 2020, the IMO will require shipowners to either use fuel with a sulfur content of 0.5 percent or less (down from 3.5 percent today) or remove sulfur from their engine exhaust using an exhaust gas cleaning system or scrubber, as they are popularly known.
Don Gregory, director of the Exhaust Gas Cleaning Systems Association (EGCSA), told American Shipper that the scrubber manufacturers that are members of his organization indicate that by 2020 there will be about 2,000 ships with scrubbers installed and more on order.
That jibes with an estimate by FGE, a Singapore-based consultant. Reuters reported earlier this month that an FGE energy consultant Thomas Olney told it, “More than 2,100 vessels are now expected to be equipped with exhaust gas cleaning systems, known as scrubbers, by 2020, up from 1,500 ships previously.”
Gregory said a survey of EGCSA members found that as of May 31 there were 983 ships with scrubbers installed or on order and 1,561 scrubber towers installed or on order. (Some larger ships have multiple scrubbers). But he says that survey may underestimate the total since only 12 of the organization’s 20 members participated in the poll.
“Overall I’d say we missed about 20 percent of the total orders,” he said. “And the view of the members is that by the end of next year there will be around 2,000 ships with scrubbers installed by then and there will be more on order. Some of the members have taken options on orders up to 2023.”
The pace of ordering has picked up in the past three or four months, he said.
“There’s been a definite wake-up call for shipowners — they’re realizing that in some cases there is talk about getting better charter rates if they have a scrubber on their ships. Some are worried about the cost of fuel, some are worried about the uncertainty about the quality of the fuel” that will be available when carriers begin blending fuel to make low sulfur bunker fuels.
Ships equipped with scrubbers can command a better charter rate because they will be able to continue to use high-sulfur fuel, which costs less than fuel with a low sulfur content.
One carrier that has been using scrubbers is Atlantic Container Line (ACL), which equipped its five new container/roll-on, roll-off ships that went into service between 2016 and 2018 with scrubbers made by Alfa Laval.
Andrew Abbott, the chief executive officer of ACL, said the scrubbers have performed well and should pay for themselves in three years — perhaps sooner because of the widening price difference between high- and low-sulfur fuel.
He noted that because ACL was building new ships, installing scrubbers was simpler than it is in some retrofits.
Scrubbers can be either “open-loop” systems in which the sulfur is neutralized with seawater or “closed-loop” systems in which exhaust is washed and neutralized with a sodium hydroxide solution.
Wartsila, another scrubber manufacturer, explained that closed loop systems are best suited for full-time operation in low alkalinity areas such as the Great Lakes.
EGCSA said that its last survey found 63 percent of scrubbers its members reported as being on order as of May 31 were open-loop systems.
Abbott explained that ACL had opted for a hybrid scrubber that can be used as an open-loop system when on the ocean and a closed-loop system in areas close to shore.
Steve Esau, the general manager of SEA\LNG, said there also is growing interest in using LNG bunkers, driven both by the new IMO 2020 regulation and the existing requirement to use fuel with a sulfur content of 0.1 percent in sulfur “emission control areas” (ECAs) established by the IMO several years ago.
These include waters within 200 miles of most of the coastline of the United States as well as parts of the Canadian coastline, Caribbean, Baltic Sea and North Sea.
A dashboard on the SEA\LNG website that is updated regularly by the classification society DNV GL said there are 119 LNG-powered ships today and another 125 on order.
In addition, there are 114 “LNG-ready” ships in operation or on order. These are ships that can be readily converted to use LNG. (Esau noted these figures do not include LNG tankers, which traditionally use part of their cargo as fuel.)
Many of the initial orders for LNG-fueled ships came from companies operating vessels in ECAs or on fixed routes. For example Tote Maritime, Crowley, Pasha Hawaii and Matson are among the companies that are operating or building LNG-powered or LNG-ready ships. These Jones Act carriers operate in fixed loops between the U.S. mainland and Puerto Rico or the U.S. mainland and Hawaii.
The cruise industry was also an earlier adopter of both scrubbers and, more recently, LNG-fuled ships.
But Esau said there is growing interest among shipowners with vessels that ply deep-sea routes. This is partly because of an increase in the number of ports with LNG bunkering facilities and LNG bunkering vessels. He said there was just one LNG bunkering vessel in operation at the beginning of 2017, but there are six or seven today and 14 more on order.
LNG is a way for a company to “future proof” itself from increasingly stringent regulations. He said LNG prices have been less volatile than oil prices.
Despite the growing number of orders for ships that can operate using LNG as fuel or use scrubbers, most shipowners are expected to comply with the IMO requirement by burning low-sulfur liquid bunker fuel.
For example, Soren Skou, the chief executive officer of the largest container carrier, Maersk, said earlier this month, “I don’t think it’s feasible to retrofit ships with LNG propulsion.
“We think that the sulfur should be taken out of the fuel at the refinery where you have the big process plants to do so,” he explained. “For us to build washing plants (scrubbers) on 700 ships simply does not make any sense to me.”
Maersk announced this month that it would become the anchor tenant in a Rotterdam terminal that the Dutch fuel storage company Royal Vopak is developing to blend and store low-sulfur bunker fuel.
Interestingly, however, Reuters reported this week that Gunvor Group decided to put on hold an expensive project at its Rotterdam refinery to install a delayed coker unit that would have allowed it to make more low-sulfur fuel.
FGE said with the uptick in scrubber orders, the drop in use of high-sulfur fuel may be less than expected when the IMO 2020 regulations kick in. Reuters quoted the Singapore company as saying demand for high-sulfur fuel may be more than 800,000 barrels per day in 2020, compared to an earlier estimate by FGE that high-sulfur fuel oil might sink to 300,000 to 400,000 barrels per day.
While seemingly unenthusiastic about scrubbers, Skou said Maersk “may invest in a few scrubbers simply to understand the technology. We don’t like the solution.”
On the other hand, media reports indicate the second-largest container carrier, Mediterranean Shipping Company, may be receptive to using scrubbers.
In July, the website Shipping Watch said it was told MSC has placed an $170 million order with Wartsila to retrofit some ships with scrubber systems.
TradeWinds also reported MSC was planning to equip ultra-large containerships with scrubbers.
Evergreen Marine is installing scrubbers on 20 containerships with capacity of 11,000 TEUs each.
The third-largest container carrier, CMA CGM, last year ordered nine 22,000-TEU ships that will be powered with LNG. The ships are to be delivered in 2020 and 2021. Last December CMA CGM signed an agreement with Total to supply 300,000 tons of LNG annually for the ships for a decade beginning in 2020..
Rolf Habben Jansen said that Hapag-Lloyd has decided to do a pilot project with scrubbers beginning next year and is looking at the possibility of converting at least one of the LNG-ready ships it added to its fleet through its acquisition of United Arab Shipping Company..
“Depending on the outcome of that, we may look at converting the other 16,” he said.
Gregory said some carriers are planning a portfolio of ships that will include some ships equipped with scrubbers, some that will be fueled with LNG and some that will use low-sulfur bunker fuel.
Habben Jansen also said he believes the industry will “see quite a long transition period where people will try to find the right balance between compliant fuel, scrubbers and LNG. Over time I think you’ll see, especially on the newbuilds, people will go more and more to LNG.”