2020 fuel options see new challenges

Malcolm Latarche
Malcolm Latarche
ShipInsight

28 February 2018


Shipowners attempting to piece together a fuelling strategy for meeting the requirements of the rapidly approaching 2020 global sulphur cap reduction need to weigh up every snippet of news that could affect their choice.

Unfortunately, most recent news seems to have clouded rather than clarified the waters with arguments being made for and against almost all of the options. For example, Maersk, which has already publicly discounted using scrubbers, and which has previously said it favours low sulphur oils or alternatives now appears to be considering LNG as well.

Søren Toft, Maersk Line COO speaking at Maersk’s Capital Markets Day in Copenhagen last week revealed that converting to LNG was one of the options it was now considering. The costs of any of the alternatives was high Toft said but the time is rapidly approaching when owners must bite the bullet.

Meanwhile Platts reporting on events at International petroleum Week last week said that some of the refiners are beginning to release details of planned new products for meeting the 2020 requirements.

According to Platts, BP announced two new fuels to be available in Northwest Europe in a private meeting with shipowners while ExxonMobil said that it would be likely to demonstrate its products later this year or early in 2019. A glimpse of what might be available was given by Iain White, ExxonMobil's global marine field engineering services manager who was reported as saying, "It will not be a distillate world going forward, as some have said. There's going to be a lot of blending, and there's still going to be a lot of residual fuel oil in what ships are using."

That view was backed up by Jason Breslaw, BP's senior originator for distillates who said "I don't think we're going to see much of the 85% diesel and 15% fuel oil products because there would be stability issues."

Exactly how many new fuels will be available is still an unknown. BP has at least two and Exxon more than that but unwilling to put a more exact number on likely options. A number of options might seem to be good news but there is a downside and that is the compatibility of different products.

The stability of individual blended fuels has been a known issue for some time but learning to cope with the permutations of different compliant products looks to be a new challenge for engineers and crews.

The option that most regulators and environmentalists currently favour is LNG. And if recent developments are the start of a trend, shipowners themselves are more willing to opt for it. Currently, the price of LNG is attractive compared to fuel oil so owners with dual-fuel engines are in an enviable position and even the cost of conversion is something that some owners would consider as an alternative to installing a scrubber.

However, nothing is certain and predicting how prices will move in the future is just another factor for owners to consider. For those looking at LNG as the fuel of the future, Shell’s new 2018 LNG Outlook publication this week provides a reason for caution.

According to the report the global LNG market has continued to defy expectations of many market observers, with demand growing by 29 million tonnes to 293 million tonnes in 2017. Based on current demand projections, Shell sees potential for a supply shortage developing in mid-2020s, unless new LNG production project commitments are made soon.

Shell’s LNG Outlook is concerned with all LNG use and use a s ship’s fuel will be just a small part of demand. Asian nations are accounting for most of the growth in demand with Japan, China and South Korea the top three importers in 2017. According to Maarten Wetselaar, Integrated Gas and New Energies Director at Shell. “In Asia alone, demand rose by 17 million tonnes. That’s nearly as much as Indonesia, the world’s fifth-largest LNG exporter, produced in 2017.”

Since 2000, the number of countries importing LNG has quadrupled and the number of countries supplying it has almost doubled. LNG trade increased from 100 million tonnes in 2000 to nearly 300 million tonnes in 2017.

If the Shell predictions are correct, then it would appear inevitable that the price of LNG for marine fuel use will rise as demand outstrips supply. That will upset not only the carefully thought out plan dos some shipowners but also those who think that shipping must be weaned off cheap oil.

Owners have no choice but to comply with whatever rules there are but if the 2020 changes do little more than to increase the cost of shipping, the real losers will be the common people who rely on low cost imports and exports to maintain a reasonable standard of living.