Retrofit surge as convention changes coincide
A delay to one regulatory change and an early implementation of another look to mean a retrofit bonanza for repair yards and engineering specialists over the next five years.
The delayed regulation is the 2004 Ballast Water Management Convention which, if it had followed the initial timeline agreed at the time of its adoption, should have seen all ships afloat fitted with a treatment system before the end of 2017. As things transpired, a lack of signatories meant that the convention only came into effect in 2017, eight years later than intended and a further compliance delay was agreed for most ships to September 2019.
Because the ballast convention requires a system to be fitted at the time the ship’s International Oil Pollution Prevention Certificate is renewed – which is done at five-year intervals – the retrofit period will extend through to September 2024.
Estimates suggest that around 50,000 ships will need to be retrofitted with a ballast treatment system but that figure could increase if, as has been suggested, some of the systems fitted in the early days prove to be unreliable and not up to the job. Some ships calling at US ports may also need to replace systems if their original choice fails to secure US Coast Guard type-approval.
Fitting a system can be done during a regular drydocking providing sufficient preliminary work has taken place. This can be done by way of a 3D survey or a more traditional pre installation inspection and some prefabrication of components has been done. However, the size of components in anything but the smallest system can be difficult to fit into the limited space on many ships. This is especially true if the system involves a filtration stage, as many do.
The other regulation that has been introduced is the final reduction in the permitted sulphur level in fuels under MARPOL Annex VI. That comes into effect on 1 January 2020 and can be met in one of two ways: burning a compliant fuel or treating the exhaust gas by means of an exhaust gas cleaning system, or scrubber.
The conversion of oil-burning engines to LNG has already been mentioned as one option but the number of ships doing this is very limited. It is from installing scrubbers that most of the work for repair yards will come.
When the IMO decided to introduce the new global cap in 2020 rather than wait until 2025, it was anticipated that around 3,000 ships would be fitted with scrubbers. For a long time this looked to be an overestimation but through the second half of 2018 until now, a steady stream of owners have revealed that they will be making the investment in scrubbers.
Included among those are some such as Maersk and Hapag Lloyd that had previously been adamant that scrubbers were not an acceptable solution. In February, Maersk revealed that it was investing $236M in scrubber retrofits. Almost certainly their change of heart has more to do with an understanding that scrubbers can confer a competitive advantage when the cost of alternative fuels carry a high premium over HFO.
The rush of new orders for scrubbers has led some to speculate that rather than 3,000 installations the number could easily reach 5,000 or more. Installation of a scrubber usually takes a little longer than for a ballast treatment system and can involve a month out of service. Freight market analysts have postulated that the number of large container ships that are now expected to be retrofitted with scrubbers could have a positive effect on freight rates as so many ships will be out of service for extended periods.
The payback time for scrubber installations will depend on the price differential between HFO and suitable compliant fuels. As the price of crude rises, so the payback period shortens. For some vessels it is likely to be less than two years, which may mean that even aging vessels will become retrofit candidates.