New sulphur regulation bad news for shippers, boon for LNG

Liquefied Natural Gas has become a hot energy source because it is cleaner than other forms of non-renewable fossil fuel and it is likely to become a lot hotter in the coming years, thanks to the International Maritime Organisation (IMO).

The new IMO decision to lower its global marine fuel sulphur limit to 0.5 percent in 2020 could cost Nigerian shipping companies over N1.8trillion in installation costs for exhaust gas abatement systems, an option which seems the most practical to ensure compliance, BusinessDay had earlier reported.

Earlier this year, the IMO announced its first ever long-term plan to reduce harmful emissions from maritime transport by introducing much stricter maximum sulphur emission limits. Now, a race is in the making between LNG fuelling terminals and gas-powered vessels, and this race will only intensify in the coming months.

From 2020, only vessels using fuels with sulphur content of 0.5 percent or less will be allowed to roam the oceans, as per the IMO’s strategy aimed at cutting total carbon emissions from maritime transport by half by 2050. Those that use fuel with a higher sulphur content, the current limit is 3.5 percent, will only be allowed to remain in operation if they are equipped with emission-clearing equipment, which naturally costs money.

So, what about the emissions-cleaning equipment, the so-called scrubbers that capture sulphur emissions? They can cost anywhere from $1 million to $5.7 million, which for many ship owners is unaffordable. Even so, Wartsila, which makes scrubbers, says that by 2020 around 2,000 ships will have them, however expensive they are. Still, 2,000 out of 90,000 are not that much, oilprice.com reported.

Most ships, Reuters authors Jonathan Saul and Nina Chestney write in a recent story on the topic, currently use fuel oil or marine gasoil, a lighter fuel, but both of these are much higher in sulphur content than LNG. In fact, industry estimates suggest LNG emits up to 90-95 percent less sulphur oxide as well as nitrogen oxide, both toxic and both targeted in the IMO’s strategy.

However, current ship bunkers are not designed to run on low sulphur fuel. Fuel oil, high in sulphur content, has traditionally been used by the shipping industry as bunker fuel. Nigerians own about 1,227 vessels according to the Shipowners Association of Nigeria (SOAN), hence the fastest way to comply would be replacing the entire fleet for new ones which cost between $40m – $100m to acquire a single cargo ship.

The University Maritime Advisory Services, a consultancy with the University College London, recently argued that the European Union’s efforts of promoting LNG for ships will not really make a climate change difference.

In fact, the consultancy said, the shift to LNG, which includes building infrastructure and processing facilities, could even increase total emissions instead of reduce them, “depending on the fuel’s supply chain and use.”

These conclusions have been challenged on the grounds that we are in the beginning of the LNG era, which means there is significant space for efficiency improvements in the supply chain and utilization of the fuel. This only makes the whole issue of maritime emission regulation all the more fascinating to follow but it does not solve the biggest problem for shipowners: they have two years to shift to LNG or buy a scrubber.

STEPHEN ONYEKWELU