Scrubbing away high cost fuel

New technology helps shipowners use bunker and still meet sulfur emission reductions.

   As 2015 approaches, shipping companies face the possibility of sharply higher fuel costs as regulations require the maximum amount of sulfur in bunker fuel used in so-called sulfur “emission control areas” (ECAs) to be cut 10-fold.
  
The International Maritime Organization has created sulfur ECAs along the coasts of the United States and Canada, including the Great Lakes; in Europe on the North Sea and Baltic Sea; and starting next year in the waters around Puerto Rico and the U.S. Virgin Islands.
  
The tougher 2015 regulations in ECAs, as well as plans to reduce the amount of sulfur in bunker fuel seven-fold in 2020, are behind an upsurge among carriers interested in alternatives to using expensive low-sulfur fuel. One of those potential technologies is on-board scrubbers that allow them to continue to use high-sulfur, lower cost fuel, but produce much cleaner exhaust.
  
Donald Gregory, executive director of the U.K.-based Exhaust Gas Cleaning Systems Association (EGCSA), said there has been a sharp increase in the number of systems being ordered for the eight companies that are members of his association. Those companies make about 90 percent of all shipboard scrubbers, he estimated.
  
As of July 22 there were systems installed on 10-15 ships and another 35-40 on order or being installed. Gregory expects those numbers to grow during the second half of this year.
  
In late August, Balder, a self-unloading 48,184-deadweight-ton bulk carrier owned by the Norwegian shipping company Torvald Klaveness and managed by Boston-based CSL Americas, an affiliate of Canada Steamship Lines, became the first vessel to operate in the U.S. ECA using a scrubber manufactured by Norway-based Clean Marine.
  
Last December, Ontario, Canada-based Algoma Central Corp. launched the first of eight ships equipped with scrubbers made by Wärtsilä.
  
And on Sept. 5 Carnival Corp., the world’s largest cruise ship operator, said it will spend more than $180 million to install exhaust gas-cleaning systems on 32 ships operated by Carnival Cruise Lines, Holland America Line, Princess Cruises and Cunard which sail regularly within the North American ECA. The company said it is exploring the possibility of expanding the installation of its scrubber technology beyond the initial 32 ships. Carnival has a total of 102 ships.
  
Carnival said an agreement in principle from the U.S. Environmental Protection Agency and Coast Guard would enable it to “use the fuel source that makes the most sense from an environmental and economic perspective.”
  
The company will now request permits from flag states to allow for the trial of the exhaust gas-cleaning technology to proceed.
  
Since 2010, ships operating in the North American ECA — which is the area within 200 miles of the coast of the United States and Canada (though parts of northern Canada and Alaska are outside of the ECA) — must burn fuel with 1 percent sulfur (10,000 parts per million) content or have emissions with equivalent sulfur oxide (SOx) emissions. Similar rules are in place for Europe’s ECA.
  
That requirement will get 10-times more restrictive in 2015, with ships required to use fuel with sulfur content limited to 0.1 percent or equivalent reduced emissions.
  
Outside the ECAs, today’s ships commonly burn fuel with 3.5 percent sulfur content, but they will be required to use 0.5 percent sulfur fuel by 2020. However, that deadline could be extended if a study slated for 2018 finds a lack of availability in low-sulfur fuel.
  
Low-sulfur fuel is more expensive than regular bunker fuel. For example, according to the BunkerWorld.com’s Website on Sept. 5, the cost in New York of high-sulfur IFO 380 bunker fuel was $626.50 per ton, while low-sulfur IFO 380 bunker fuel was $652.50 per ton. That low-sulfur fuel is used by nearly all companies when they are operating within 200 miles of the coast to meet today’s ECA requirements.
  
But in 2015, most ships are expected to use marine gas oil (MGO) to meet the more restrictive standard, and MGO is currently much more expensive – $1,010 per ton in New York on Sept. 5, and prices could change dramatically when demand increases.
  
The high cost of MGO is one reason why some companies operating in an ECA zone are looking at liquefied natural gas as an alternative fuel.
  
For example, the Puerto Rico carrier Sea Star plans to build LNG-fueled containerships and TOTE, its sister company that offers service to Alaska, looks to repower vessels with LNG.
  
Companies can also use scrubbers to meet the emission requirement, and apply to the U.S. Coast Guard for an “equivalency letter” that says their emissions are similar to what could be achieved by using low-sulfur fuel.
  
To date, use of scrubbers is not common. Lt. Commander Edgardo Cruz, chief of the Inspection Division at the Coast Guard’s Sector Baltimore, who conducted a port state control exam of the Clean Marine system on Aug. 29 in Baltimore, said he had not seen a scrubber on a ship previously.
  
He said the Clean Marine system was found to be in compliance with the MARPOL Annex VI emission requirements for ships operating in the ECA and the company plans to submit a request seeking a letter of equivalency from the Coast Guard.
  
Clean Marine said its scrubber is certified by the classification society Det Norske Veritas and has been proven to reduce sulfur content to below 0.1 percent, so that the ship can use high-sulfur fuel and still comply with the much stricter 2015 ECA regulations.
  
Lasse Kristoffersen, chief executive officer at Klaveness, said while it may be hard to make the business case for installing the equipment today, it gives his firm the opportunity to evaluate the scrubber and advance the company’s environmental goals.
  
“If this technology works and the ECA requirements are implemented as planned in 2015, where you have 0.1 percent, we will consider seriously running these out in the rest of the fleet trading in this area,” Kristoffersen said.
  
Pia Meling, sales and marketing manager for Clean Marine, said the equipment has been tested and shown to meet those 2015 standards.
  
“There are a lot of shipowners that are interested in this, but a lot are also sitting on the fence and thinking we can look at this later,” she said. “There is about 6 months lead time from ordering a system until it is installed. We expect a lot more orders and interest going into next year.”
  
Kristoffersen said the scrubber is particularly attractive for operating a ship like the Balder, which spends a great deal of time traveling within the ECA zone.
  
“Ships coming in from Europe or the Far East, it is a very small percentage of the voyage that is in the ECA area, but these ships are more often trading within the Americas — Latin America, North America. Then they are 50-60 percent of the time in the ECA,” he said.
  
For example, typical customers for Klaveness’ self-unloaders include steel mills, iron ore producers, coal importers and exporters, gypsum board producers, utilities, quarries and aggregate companies. The most common cargoes are stone, coal, iron ore, gypsum, petcoke and salt, though Kristoffersen said they carry coal from Colombia to the United States, as well as products such as aggregate from Canada to the United States.
  
A Danish study called Green Ship of the Future compared retrofitting ships to power them with LNG or scrubbers and found “from a financial perspective, the scrubber alternative is potentially attractive when the vessel would trade a reasonable amount of time inside ECA.”
  
It said the net present value and payback time are “quite sensitive” to the spread in fuel cost between high-sulfur fuel and marine gas oil. For a cost differential of around $350 per ton, the payback time is about three years for 100 percent ECA operation and eight years if the ship spends just 25 percent of its time in an ECA.
  
Gregory agreed most of the scrubbers have been ordered for ships that spend the large majority of their time in ECAs.
  
He believes scrubbers have not been ordered in great numbers, in part, because of the difficult economic condition that many shipping companies find themselves in and the need to fund other environmental equipment, including ballast water treatment systems. He also said some shipowners were hoping the 2015 regulation might be postponed and concerned about whether the technology is proven, and interest in LNG is high, particularly in North America.
  
Meling said Clean Marine has only sold two units for new ships, both being built by Samsung in South Korea for use as shuttle tankers that will be operated in the North Sea in the European ECA.
  
She said companies that operate exclusively or largely in ECAs are more inclined to have an interest in scrubbers, but as 2020 approaches, that interest will likely become broader.
  
Meling said the $2.5 million-to-$3 million cost of an installed system on a midsized ship like the Balder could be offset by lower fuel costs in a year or two if it operates entirely within an ECA.
  
A U.S. Department of Transportation study published in 2011 estimated the equipment cost for open-loop scrubbers would range from $1 million on an engine with 1 megawatt of capacity to $3.1 million for a 36 megawatt engine.
  
In addition to Clean Marine and Wärtsilä, other members of the EGCSA that make scrubbers for ships are Alfa Laval, Couple Systems, DuPont Belco Clean Air Technologies, Green Tech Marine, MAN Diesel, and Marine Exhaust Solutions.
  
While companies like Klaveness have put scrubbers on their main and auxillary engines, some carriers have built systems just for their auxillary engines.
  
For example, APL installed a Hamworthy/Krystallon scrubber on the 5,500-TEU containership, APL England, for three auxillary engines used to power refrigerated containers on the ship as well as when it’s docked and hoteling. Hamworthy/Krystallon was later acquired by Wärtsilä.
  
In 2011, Maersk reached agreement to have DuPont’s Belco subsidiary design, manufacture and supply a scrubber for one of the engines on its ship Maersk Taurus.
  
A report prepared by Bluefield Holdings in Seattle said tests conducted aboard the APL England vessel while in transit between Taiwan and mainland China and at berth at the APL Global Gateway South Container Terminal in Los Angeles found “emissions and discharges from the scrubber met all project expectations.”
  
The project was funded in part by the ports of Los Angeles and Long Beach.
  
James Kross, president of Bluefield, agreed with Gregory that the recession in shipping, the difficulty companies have passing higher costs onto shippers, and hope the effective date of regulations might be postponed are among the reasons shipping companies have not yet embraced scrubbers.
  
If the differential cost in bunker fuel and low-sulfur gas oil persists, Bryan Wood-Thomas, vice president of environmental policy at the World Shipping Council, believes “it is inevitable that a lot of people are going to be asking themselves: ‘Do I want to go the scrubber road?’”
  
He said a scrubber installed earlier this year on the Tarago, a roll-on/roll-off ship used by Wallenius Wilhelmsen Logistics, should give the liner industry good insights into the technology and economics of scrubbers in the liner industry.
  
Unlike some scrubbers, the one on the Tarago will be used to clean the exhaust not just from auxillary engines, but from the main slow-speed, two-stroke engine that powers it across the ocean.
  
Those are the sorts of engines used by nearly all containerships, whereas cruise ships, for example, commonly use a bank of several diesel electric engines. They are well suited to provide the mixture of electric power needed for all the hotel-like services on a cruise ship and because the number of engines can be varied depending on how quickly a ship needs to get to a destination and what the weather conditions are like.
  
In addition, the Tarago trades to North America, Europe, and Asia, and only spends about 20 percent of its time in ECA zones, so it will provide insights into how a scrubber might help a company that trades globally.