Bureau Veritas


The Impact of the 0,5% Global  Sulphur Cap

Dr. John Kokarakis

Bureau Veritas

kokarakisLast October, the Marine Environment Protection Committee of IMO made a critical decision, which is expected to have serious  implications for the economics of shipping. This is the decision to implement the global sulphur cap of 0.5% on January 1st 2020 applicable to all ships as required by MARPOL Annex VI adopted in 2009. Shipping companies are called to consult a crystal ball and predict the price of various fuels in the future. It is expected that the cost of compliant low sulphur fuel will  be over 50% more than the cost of residual fuel (HFO). Within Emission Control Areas, ships must burn fuels with 0.1 % sulphur content. Decisions are highly dependent on the price differential between compliant and residual fuel. The current price gap between residual and distillate fuels is expected to increase due to increased future demand for distillates and increased fuel blending. It is expected that the introduction of hybrid compliant fuels will tend to decrease the price gap. The current predictions place that gap in the range between 250 and 300 Euros per ton.

Although adoption of low sulphur cap in the open ocean might be a controversial decision, the target is to avoid acidification of the ocean environment. It is well  known on the other hand that SOx aerosols in the atmosphere provide cooling effect counteracting the warming green house gas layers. Discontinued use of Heavy Fuel Oil at high seas will remove the cooling effect of shipping as advised by prestigious institutions such as MARINTEK and CICERO.

The IMO  decision is based on the availability of compliant fuel rather than the economics. Shipping companies need to choose one of the following three paths of compliance. The first is to use compliant low sulphur fuel (MGO) or hybrid ultra-low sulphur HFO, paying the higher fuel price. California accepts only this path at port and at 24 miles from the coast. Another path is to utilize an exhaust gas cleaning system like scrubbers allowing them to continue burning HFO. There is a lot of discussion on the availability of HFO after 2020. Last but not least, a shipping company can choose to burn an alternative fuel with minimal or zero sulphur emissions like for example natural gas or methanol. These alternative fuels do not require significant modification of the existing internal combustion engines but there are problems with the availability and bunkering of these fuels. Another critical issue is the cost of the storage tanks for the natural gas and the peripherals associated with the fuel distribution system. There is no doubt that LNG will be the lowest priced alternative but it definitely requires significant  capital investment. Evidently the age of the ship will be a deciding factor, choosing a fourth path to send the vessel for recycling.

At the same time, IMO Member States must address the critical issue of enforcement of compliance in order to guarantee fair competition and a level playing field. Remote Sensors installed on harbor entrance pathways or sniffers on drones can detect if compliant fuel is used by the ship. Of course many advocate the on-board fuel sampling as the most legally sound test method.

Utilization of scrubbers is associated with high capital and installation costs. Scrubbers utilize premium space which increases in proportion to the combined power of the main and auxiliary engines and the boilers. Installation is especially challenging in retrofits. There are also associated operational costs like the power necessary to move the sea water, the cost of the sludge handling and that of chemical consumables. In case the shipping company chooses to follow the scrubber solution then it is recommended to install a hybrid type which works in a closed loop mode in protected areas (Fig. 1) and in an open loop mode in the ocean (Fig. 2). An additional advantage is the independence of the hybrid scrubber from the local alkalinity of the sea water. Reasons of space economy also dictate to utilize multi-inlet scrubbers. A scrubber unit for a 20 MW total power of exhausting units costs in the range between 2.5 to 3 million Euros with the higher price for the retrofits. An additional 75% to these prices is an approximate estimate for the installation cost. Figures 1 and 2 depict the fact that there is a dire need for space when it comes to scrubber installation. A scrubber serving a 20 MW engine has a height of about 11 meters and a diameter of 4 meters.

The recommendation to the shipping companies is to consider all four possible paths and perform a techno-economic study prior to making a decision. The study will factor in fuel prices, capital and operational costs, trading pattern of the ship and expected utilization. Scrubber operation for example although, successfully tried in passenger vessels with many small engines, it is on trial in cargo ships with fewer larger engines. The uncertainty associated with fuel prices can be handled assuming two extreme cases, namely the price differential between distillates and HFO to be very high or low like today. Estimation of the Return of Investment (ROI) time will provide the KPI on what path to follow for compliance.

Figure 1: Hybrid scrubber in close loop mode


Figure 2: Hybrid scrubber in open loop mode