Future Marine Fuel Quality Changes: How might terminals prepare? Further reading from IHS: What Bunker Fuel for the High Seas? A global study on marine bunker fuel and how it can be supplied
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Topics of this presentation Current status of relevant regulation; Options for compliance; Maritime preparations; Implications for terminals. 3
Ships emissions will have to reduce substantially MARPOL Annex VI, SOx emissions Other regulation and initiatives 5.0 4.0 3.0 2.0 1.0 0.0 Max Sulfur content, wt% Global ECA Review in 2018 to determine availability of LS fuel and start date for 0.5% S limit 2005 2010 2015 2020 2025 2030 NOx emissions Tier III in ECAs: down 85% for new ships from 2016 (postponed to 2021). Energy Efficiency Design Index: new ships to be built according to certain CO2 emission reduction targets -10% from 2015, -20% from 2020 and -30% from 2025 In 2020 the European Union will cap Sulfur content of bunker fuel in the European Economic Zone at 0.5%S. Current ECAs : North Europe and North America Other ECAs possible, but not forthcoming Study by the IMO in 2018 is considered too late by many stakeholders. Irrespective of any postponement to 2025 of the global switch by the IMO The EU was discussing a directive that could oblige 139 ports to have LNG bunker supply infrastructure in place by 2020 (postponed to next decade) 4
It is unlikely that the IMO regulation will cause a complete switch to 0.5%S bunker The new emission regulation allows the use of SOx abatement devices to meet SOx emissions equivalent to 0.5%S fuel, while burning high sulfur fuel. There are three main options currently being considered by ship owners to meet the new emission regulation Fuel Compliance Scrubbing LNG FUEL COMPLIANCE: Ships will burn fuel oil with a maximum content of sulfur as set by the new specifications. USE OF EXHAUST GAS SCRUBBERS: Some ships will invest in onboard devices to scrub SOx from exhaust gas. They will carry on burning high sulfur fuel while achieving equivalent SOx emissions. We estimate that for large ships the investment cost can be paid back by the fuel price differential quite rapidly. BURN LNG: Natural gas burns clean, so LNG is another option. This has higher capex, but it will help with meeting other emission reduction targets related to NOx and particulates. Reality is likely to be a combination of all three; but what will be the mix? 5
Early indications indicate a shippers using more volumes of compliant fuel PORT OF ROTTERDAM QUARTERLY BUNKER QUANTITIES 2900 2700 2500 2300 2100 1900 1700 1500 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Source: Port of Rotterdam Bunker Report Fuel Oil Gasoil 2015 IHS Several companies have launched 0.1%s bunker fuel as alternative to usual bunker fuels such as MGO 6
% of bunker demand Payback time Scrubbers are economically attractive versus using 0.5%S fuel for the largest ships in the longer term Scrubbing economics: 0.5%S HFO = 3.5%S HFO + 230$/t, never in an ECA, max 60% load Figure 5, Scrubber payback, 100% global and never in ECA 100 90 80 70 60 50 40 30 20 10 Source: IHS 0 0 0 5 10 15 20 25 30 %HFO % of ships payback time, 100% Global 5 4 3 2 1 2014 IHS 30% of world s ships account for 100% of HFO demand Of these, the 17,000 largest ships account for 80% of HFO demand They are all expected to see a payback time of about 2 years or less on installing scrubbers The main concern for this scenario is what to assume in respect of the period of time that will be needed for this to happen 7
But scrubbers are increasingly being installed, particularly for devoted ECA service 8
Does LNG offer a viable alternative bunker fuel? 900 800 700 600 500 400 300 200 100 0 $/ton foe US, large scale liquefaction, low cost port US, small scale Liquefaction, low cost port Bunkering margin LNG price 3.5%S Bunker 0.5%S Bunker US, small scale liquefaction, high cost port Europe, low cost port MGO/MDO Europe, higher cost port North Asia, low cost port North Asia, higher cost post Asia, domestic gas, small scale liquefaction LNG results in lower fuel costs than fuel compliance options (distillates or 0.5%S bunker) LNG prices are below 3.5%S fuel oil throughout the world, but after allowing for bunkering margins most of the incentive is gone in most cases A ship equipped with scrubbers would tend to see similar fuel costs than LNG 9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Despite space, safety and logistical drawbacks, there has been a strong rise in LNG fuelled ships on order including containerships Ferries and North Europe have currently the largest share of the market Recently growth with vessels destined for US market (Crowley, Tote, Washington State Ferry, Royal Caribbean). End 2014, 50 LNG-fuelled ships in operation (mostly in Norway), 69 on orders 38% in NWE, 28% in Norway, 28% in the U.S., 6% in Asia (Source DNV) Also, recent orders now include container ships (largest category for bunker demand 18% of total demand in 2015, 28% in 2040) Quite a few ships are LNG ready, designed with ability to convert to gas once in service LNG-fuelled ships ordered 50 45 40 35 30 25 20 15 10 5 0 LNG-fuelled vessel by category (operating+ on order) car/passenger ferry Upstream supply ship others Containership oil product & chemical tankers Ro-Ro/Ro-Pax Tug number of orders per year Source: IHS, DNV 2014 IHS Note: we have chosen DNV figures, as more conservative. IHS Maritime figures show 144 ships vs.120 Source: DNV 0 10 20 30 40 operating on order 2014 IHS 10
Potential implications for terminals For change to 0.1%S in ECAs more MGO bunker demand also other fuel compliant grades So initially there is potential to need more grades to be stored For change to 0.5%S worldwide Unlikely to serve demand with sufficient quantity of compliant fuel Likely to be greater use of scrubbers LNG penetration may prove difficult to establish and grow in near/medium term So potential to revert back to greater use of more typical heavy bunker fuels is likely post 2025 IHS Study Link http://workspace.ihs.com/sites/sales/spa/multiclient Studies/What Bunker Fuel for the High Seas/What Bunker Fuel Study Brochure Aug 2013.pdf 11
Contact: John McVay, Managing Director IHS Energy, Oil Markets and Downstream (OMDS) Consulting +44 208 276 4783, john.mcvay@ihs.com IHS Customer Care: Americas: +1 800 IHS CARE (+1 800 447 2273); CustomerCare@ihs.com Europe, Middle East, and Africa: +44 (0) 1344 328 300; Customer.Support@ihs.com Asia and the Pacific Rim: +604 291 3600; SupportAPAC@ihs.com 2014 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For more information, please contact IHS at Customer Care (see phone numbers and email addresses above). All products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners.