GREEN4SEA Conference & Awards

5 Apr 2017
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GREEN4SEA Conference & Awards

5 Apr 2017
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Scenarios and challenges ahead of Global Sulphur Cap

In an exclusive interview with GREEN4SEA, Panos Zachariadis, Technical Director, Atlantic Bulk Carriers Management Ltd, shares his insights into all latest environmental regulations and their implications on ship operators. Mr. Zachariadis explains why the industry is not ready to the Global Sulphur Cap and discusses possible scenarios until the implementation deadline.

 

GREEN4SEA: Do you think that the industry is ready for the 2020 Global Sulphur Cap? What may be the biggest challenges to prepare?

Panos Zachariadis: The industry is not ready. And by “industry” I mean mostly the fuel producers, by their own admission. That is the main problem. There were two studies submitted to IMO, one by “industry” including refiners.  Industry said “there will be no fuel available by 2020 even if we started preparations and the required investments yesterday.” In addition a submission by ISO cautioned about the danger of “designer” fuels.  These were simply ignored.  The majority of IMO member-states wanted favourable news headlines for various reasons (to show the EU that they take action etc). It was a “political” decision.  We have seen before what happens when facts are ignored and political decisions are taken (remember Ballast Water Treatment?)

In short I expect a mess and I’ll be very surprised if this goes smoothly and on schedule.  One possibility I see is that, come 2019, IMO will have to face reality (not enough availability of safe fuel) and re-examine the application date.  One other – unfortunate – possibility is that, since MDO cannot be available in such quantities, untested “designer” fuels will be introduced to fill the void.  Current experience with hybrid (de-sulfurized) fuels is not good; they are very unstable.  But a further fear is that inappropriate blends may also appear pausing a safety threat!  ISO in its submission to IMO warned that cutting heavy fuel with e.g. naptha may show acceptable flash point limit but still may be explosive!  And there will be no ISO or other quality standards for such “designer” fuels by 2020.

 

G4S: Do you anticipate the 2020 SOx ban in conjunction with NOx & GHG measures to boost the quest for alternative fuels? Which fuel option do you expect to prevail in the market in the long term and why?

P.Z.: Medium term I see LNG as gaining impressive ground as the fuel of choice. Practically zero SOx and NOx but, despite popular belief which claims 20 – 30% better in GHG emissions, it has no actual difference in GHG effects than normal IFO-380 if one accounts for methane slip, especially during the production of LNG. However for bulk carriers it is a limited choice since retrofit is impractical, whereas to apply it to newbuildings requires design rethinking and loss of cargo carrying capacity.  I think the quest for alternative fuels has already started; ethanol, methanol, hydrogen fuel cells, even nuclear is looked at again. A new better type of battery may also open new horizons.

 

G4S: Given the volatility and uncertainty in the fuel pricing for both diesel and LNG, what is your advice to owners/managers of Ships to fully comply with MRV, EEDI, NOx Tier III and SOx issues especially in way of EU ECA and the 0.5% Global Sulphur Cap from 1/1/2020?

P.Z.: Your question includes all the latest environmental regulations (save BWM) so let’s look at each one of them.  I’ll be brief because many pages could be written on each topic.

MRV

Currently we have two very different MRV regulations: the European and the IMO.  The first is almost completed and the IMO will be soon.  The European is an exercise in futility.  It was Europe’s attempt to lock shipping into ETS which thankfully, failed at IMO level.  Unfortunately operators will have to comply with the complex, unrealistic, unnecessary and bureaucratic EU MRV for a few years until IMO’s MRV starts, at which time, or soon after, EU will have to abandon theirs.  I don’t see they have any other choice.  So each company must prepare now for the EU regulation but my advice is to take into account in the company’s system the IMO MRV so you won’t have to drastically change your monitoring methods and reporting later.

EEDI

That’s not a regulation for operators.  It is for shipyards to comply.  You shouldn’t care what your ship’s EEDI is.  It means nothing with regard to actual fuel efficiency.  What you should care about is HOW the shipyard met the regulation.  By redesigning their hull lines to reduce ship resistance or simply by installing a smaller engine (which at best will be more thirsty during actual operation and at worst dangerous in bad weather).

NOx Tier III

For ships built now and a few years into the future (before the Baltic Sea becomes NECA) this is a requirement only for the American (N)ECA.  If you don’t go to USA/Canada, you don’t need it.  In practice the new equipment is a huge expensive catalytic reactor which increases crew tasks, creates nasty by products and increases the fuel consumption of the engine.  It would help to reduce its size and cost of the equipment if the USA would agree to allow vessels to go slower whenever they enter its NECA (and thus have two power ratings, one reduced for NECA and one for the open sea).  But so far, the USA does not agree to this and I am not sure why.

SOx

To comply there are two practical options:  burn low sulphur fuel (diesel, gas oil or design fuel) or install a scrubber (another huge expensive piece in the exhaust with tanks, pumps and nasty by products).  There are many questions for both options.  Will there be enough available diesel?  Will the de-sulphurized designer” fuels be safe? What will be their price? If you install scrubber will you be able to find heavy fuel oil to use or will it disappear from the shipping market? How will the scrubber by-products be regulated? Of course there is also the choice of LNG with the limitations that we already mentioned.  But the price of LNG is also a big question mark and it follows the price of oil.  It seems most operators are adopting a wait and see attitude.  The first few years after the ban most will scramble for diesel or low sulphur fuels.  Certainly prices will jump in the beginning.  Unfortunately not all pieces of the puzzle are in place to enable wise investment decisions now.  That’s why scrubber installations are proceeding much slower than expected.  Some owners in their newbuildings specify “scrubber ready” ships where only the space for a future scrubber installation is accounted for.

 

G4S: Lack of uniform monitoring and enforcement/penalty policies in EU in conjunction with a wide North European ECA has incentivized many shipowners. Is this a temporary or a more permanent distortion of competition and are there any countermeasures towards fairplay?

P.Z.: This is a serious issue.  Everything possible should be done to prevent cheating (i.e. burning cheaper – but illegal- fuel when nobody is looking).  For a start it is a good idea not to allow heavy fuel to exist onboard for any reason unless the ship has a scrubber.  But there is a lot more that needs to be done for uniform monitoring and enforcement.  How can we be sure that a ship with scrubber is actually operating the scrubber in the middle of the ocean? Almost half of the coastal countries of the world are not part of MARPOL Annex VI.  Why would they care what a ship is burning in the open sea?  There are many more similar issues with enforcement but we have no choice; we must work toward some global policing so as not to allow the “cheaters” to have a commercial advantage.

 

G4S: Now that EU voted in favor of including shipping in EU ETS, what does it mean for the industry?  What do you think may be the immediate and long term consequences of the introduction of an ETS for shipping? Is 2021 target set by EU sufficient for IMO to develop a competitive framework?

P.Z.: The EU did not vote in favor of ETS.  The EU parliament did and –thankfully-  the EU parliament has no rule-making authority.  EU rulemaking is done by EC, the European Commission, which must later obtain the agreement of the EU Council (of ministers) and the EU parliament for refinements. In this case the parliament just threw a firework which, as all fireworks, flashes and fades in the night.  They did so against the advice of the Council and Commission.  So I don’t worry.  ETS would not be workable in shipping anyway because of the complexity of international shipping operations. Also imagine Cosco ships having to buy ETS allowances to enter their own property, Piraeus docks. What do you think Chinese reaction would be toward Europe?  The IMO MRV as it now stands is not suited for ETS, so I don’t particularly worry about a global ETS in the future.  And as I said the EU MRV, which was practically designed for ETS, will have to be dropped soon, once IMO MRV starts.  Undoubtedly however, EU pressure on IMO expedites things.  Now even operator organizations talk about concrete numbers of CO2 reduction targets and surely by 2021 some “ system” of CO2 control could be in place by IMO.

 

G4S: What is your key message to the ship operators with respect to their anxiety/ uncertainty of the Global Sulphur Cap implementation in 2020?

P.Z.: Seaborne transportation cannot be disrupted, or the whole world economy will be disrupted.  So I hope that solutions for smooth transition will be found e.g. if sufficient fuel is not available or fuel safety is questioned, appropriate date extensions should be given by IMO.  Economic concerns are another issue.  Fuel price jumps are mostly passed eventually to consumer. I hope explosive fuel price increases do not occur, or if they do, they won’t last long since they will disrupt trade. But as I said before, I will be surprised if it all goes smoothly. At least no ship operator will be alone. This will affect all ship types and sizes and all shipping companies in a similar way. 

 

The views presented hereabove are only those of the author and not necessarily those of GREEN4SEA and are for information sharing and discussion purposes only.

 

Panos Zachariadis, Technical Director, Atlantic Bulk Carriers Management

Panos Zachariadis is Technical Director of Atlantic Bulk Carriers Management Ltd since 1997. From 1984 to 1997 he was Marine Superintendent in the company’s New York office. His shipping experience spans diverse areas including sea service in bulk carriers and oil tankers, dry dock repairs, new building supervision and specifications, ship operations and chartering. He holds a MSE degree in Naval Architecture and Marine Engineering from the University of Michigan. He has been attending IMO since 2004 as a member of the Greek delegation. He was extensively involved with IMO’s Goal Based Standards and the Greek study which reversed the IMO decision to make double hull bulk carriers mandatory. He was also instrumental in developing the new IMO coating standard (PSPC) for all ships’ ballast tanks. Currently he is involved in the new IMO environmental regulations for ships. He has written numerous technical guides, papers and articles and has been awarded the 2011 Efkranti Shipping Personality award for promoting Greek Shipping internationally. Member of Hellenic Chamber of Shipping and UGS technical committees, BIMCO Marine Committee, ABS European Technical Committee, BOD HELMEPA and MARTECMA.

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One comment

  1. Nikos Petrakakos

    I so strongly disagree with most of the view on this, with the exception of the risk from the “designer” fuels and other untested blends to come. The only good thing from Dr Zachariades stance is that his skepticism can force discussion, and in turn proactive measures to be taken so that the bumps in 2020 are minimized further.

    Of course refiners will not be ready in 2020. But had the IMO said 2025 outright then they would again not be ready by then. Refiners, not in the best financial position, would have waited for the opportune time to invest, likely too late to fully be ready even for 2025. At least this way the IMO forces them to act and invest timely.

    Outright postponing the implementation beyond 2020 should not even be considered. So what if not enough 0.5% fuel is available for a 1/1/2020 switch? As with the original ECA zone, shipowners will be given leeway with “non availability” exemptions. I remember stopping in Falmouth to pick up MGO countless of times until smaller loading ports caught up. Major ports will all be ready on time, so it will be limited to minor ports, that will all adapt over time. So the challenge should be in terms of how to verify that operators are acting in good faith when declaring non-availability within their route.

    The IMO could implement a special very high tax/fee on HFO on all ports with availability issues (for ships without scrubbers), to level the playing field between trade routes and ports, and then use those funds to supplement more widespread enforcement.

    Enforcing the regulation is a concern, but not as big as Dr Zachariades presents it to be. As he states, if a ship without a scrubber has high sulfur HFO on board it is almost guaranteed to be penalized if records are briefly examined. Simply looking through records will be enough to see if non-compliant fuels are being consumed without a non-availability exemption. Indeed one can forge records, but that happens in all aspects of our business, so the answer should be heavy penalties for explicit deceit. We can’t all drop the the cheaters’ level, but instead we should force them to come to our level. In terms of not using scrubbers while far at sea, I do not see that being widespread enough to matter. The financial benefit is too limited. And most owners who has gone through the process of installing and financing a scrubber are likely not the kind of owners who will go through this logic for cheating.

    I think all this fear is overblown. Most bumps will eventually smooth out over time, and at little to no unreasonable expense to all owners who honestly do their best to comply.

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