Imo emissions mandate update_ a comprehensive review of options _ seeking alpha

The decision to implement a global sulfur cap of 0.50% m/m (mass/mass) in 2020, revising the current 3.5% cap, was announced by the International Maritime Organization, IMO, the United Nations regulatory authority for international shipping on October 27th.

The reductions in sulphur oxide emissions resulting from the lower global sulphur cap are expected to have a significant beneficial impact on the environment and on human health, particularly that of people living in port cities and coastal communities, beyond the existing emission control areas.

Ships can meet the requirement by using low-sulphur compliant fuel oil. Gas buddy An increasing number of ships are also using gas as a fuel as when ignited it leads to negligible sulphur oxide emissions. La gasolina letra This has been recognised in the development by IMO of the International Code for Ships using Gases and other Low Flashpoint Fuels (the IGF Code), which was adopted in 2015. Grade 6 electricity unit Another alternative fuel is methanol which is being used on some short sea services.

Ships may also meet the SOx emission requirements by using approved equivalent methods, such as exhaust gas cleaning systems or “scrubbers”, which “clean” the emissions before they are released into the atmosphere. Electricity grid map uk In this case, the equivalent arrangement must be approved by the ship’s Administration (the flag State).

This mandate impacts all shipping companies including but not limited to Ardmore Shipping (NYSE: ASC), Costamare Inc. Electricity cost by state (NYSE: CMRE), Capital Product Partners L.P. Electricity dance moms choreography (NASDAQ: CPLP), Danaos Corporation (NYSE: DAC), Diana Containerships (NASDAQ: DCIX), DHT Holdings (NYSE: DHT), Dynagas LNG (NYSE: DLNG), DryShips (NASDAQ: DRYS), Diana Shipping (NYSE: DSX), Euronav (NYSE: EURN), Frontline (NYSE: FRO), Golar LNG (NASDAQ: GLNG), GasLog (NYSE: GLOG), GasLog Partners (NYSE: GLOP), Golar LNG Partners (NASDAQ: GMLP), Genco Shipping (NYSE: GNK), Gener8 Maritime (NYSE: GNRT), Golden Ocean Group (NASDAQ: GOGL), Navios Maritime Midstream Partners (NYSE: NAP), Nordic American Tankers (NYSE: NAT), Navios Maritime Holdings (NYSE: NM), Navios Maritime Partners (NYSE: NMM), Navios Maritime Acquisition (NYSE: NNA), Pyxis Tankers (NASDAQ: PXS), Scorpio Bulkers (NYSE: SALT), Safe Bulkers (NYSE: SB), Star Bulk (NASDAQ: SBLK), Ship Finance International (NYSE: SFL), Seaspan Corporation (NYSE: SSW), Scorpio Tankers (NYSE: STNG), Teekay LNG Partners (NYSE: TGP), Teekay Corporation (NYSE: TK), Teekay Tankers (NYSE: TNK) and Tsakos Energy Navigation (NYSE: TNP).

A shortage isn’t out of the question as the IMO has made some major assumptions regarding availability. E seva power bill payment Among the most important would be that refiners would dedicate refinery capacity to produce these fuels and that all necessary supply would be available at the start of 2020. Electric utility companies in arizona However, refiners aren’t motivated by mandates, but rather by profit. Electricity invented Therefore, they will produce what offers them the best return and can’t switch over from one fuel to another ‘overnight’.

Additionally, as we will discuss further, many of the vessels projected to use this fuel will be the older vessels. Electricity definition Younger vessels could see long-term cost savings by implementing other strategies to meet the IMO mandates. Electricity and circuits class 6 questions Meaning refiners might be hesitant to commit to a shift in production for what could turn out to be a temporary market which will lose customers as aging ships are sent to the scrap yard.

A shortage of the required fuel is therefore a very real possibility and should push costs even higher for compliant MGO. Gas vs electric oven temperature If this happens, the economics of other technology to meet the IMO’s requirements could become even more attractive as the price spread increases.

This could lead to once profitable vessels becoming unprofitable. Gas monkey bar and grill In fact, MJLF reported that this is a very real possibility and the IMO mandate “will push distillate prices higher” and “we expect scrapping to start to vessels that will be going into their fourth special survey from 2018 onwards.”

As noted, that survey comes at just 17.5 years of age for tankers. Gas up This comes as the other major IMO mandate, the Ballast Water Management Convention, is set to add another expense during the first survey following September of 2017.

Some bear markets for particular segments aren’t projected to clear up by 2018, meaning higher bunker costs, one-time BWMC retrofits, and low rates could take a significant toll on the existing fleet.

One such segment which will continue facing headwinds is the container shipping sector. Electricity 101 episode 1 The Maritime Executive reports that the latest IMO sulfur mandate means “the additional costs for the container shipping sector alone could be $35-$40 billion.”

This is not welcome news for a group that is still digesting the Hanjin shipping bankruptcy as survivors continue to consolidate and form alliances in an effort to increase operational efficiency to merely survive.

MSC, the world’s No.2 container line, estimated its own additional annual fuel costs at $2.02 billion. K gas cylinder In response, MSC has launched a $250 million retrofitting program to make its fleet cleaner.

A scrubber is a device installed in the exhaust system after the engine or boiler that treats the exhaust gas with a variety of substances. Tropico 5 electricity For vessels, those substances are typically sea water, chemically treated fresh water, or both, otherwise known as open loop designs, closed loop designs, and hybrids, respectively.

An open loop system uses ambient seawater for exhaust gas scrubbing. Gas constant mmhg The sea water is filtered for heavy metals and particulate matter and then discharged into the sea containing all the sulfur cleaned from the exhaust. 5 gases emitted from the exhaust pipe These are simpler systems and do not require large amounts of waste storage and handling on board, but there are issues of water intake quality and more importantly some ports and areas may not permit the discharge of the waste water containing sulfur.

A closed loop system uses fresh water that is chemically treated usually by caustic soda injection to effect scrubbing. J gastroenterol hepatol Most of the scrubbing agent is re-circulated with only minimal water intake and effluent discharge. S gashi These systems avoid the issues of waste water discharge, but are more complex, more costly to run, and create waste storage and handling issues on board.

Scrubbers remove most of the SOx from the exhaust and reduces particulate matter to some extent. Gas 4 less After scrubbing, the cleaned exhaust is emitted into the atmosphere.

There are numerous companies that offer a variety of designs. Gas mask tattoo Since the IMO has left it up to the “ship’s Administration (the flag State)” it will not be a one size fits all arrangement.

It is this variety and ambiguous wording that will probably lead to owners delaying implementation of this technology until approval is assured and costs perhaps come down due to greater adoption.

First, the adoption of scrubber technology will be driven in part by the spread between HFO and MGO. Gas constant for nitrogen Second, older vessels will not have this technology installed due to the high initial costs and shortened recovery period due to expected vessel life.

Poten & Partners notes that the cost of running scrubber technology will add approximately “$20-$50 per ton of consumption.” It estimates that installation costs will range between $3-$6 million, which means that a “VLCC burning 70 tons of fuel for 250 days per year would have a payback period of about 2 years.”

Right now, scrubber technology remains in its infancy and the costs are high with some industry bodies suggesting the cost could range from $3-10 million depending the size and type of vessel, as well as the ease of installation. Gas emoji However, retrofitting scrubbers may not be technically straightforward, given the requirements for additional space and waste collection tanks.

Even after taking these challenges into consideration, it is still likely that owners with that wish to keep their vessels on the water for at least a few years after the 2020 deadline will likely be considering scrubber technology as one alternative to MGO, if they have the capital to make this change.

Another option can be converting a vessel to be powered by LNG. Z gas station The economics behind this move come down to conversion cost coupled with the spread between LNG vs. Kansas gas service login MGO. Electricity deregulation wikipedia Since that spread is dynamic, it can be hard to nail down an exact number.

Conversion costs can range anywhere from approximately $6 million to $22 million. Gas prices map Clean Marine reported that the MGO vs. Electricity generation in california LNG spread favors LNG, even in today’s environment with projected recovery costs of about “2-5 years for many vessels.”

One recent example for a 1,400 teu vessel on a loop that runs from the Baltic ports of St. Ortega y gasset Petersburg and Riga down to Rotterdam and up to the UK’s Teesport, a 12.5 day journey, illustrates the cost savings. Npower electricity power cut As noted, prices and therefore the spread are dynamic, so variations will occur, but The Loadstar reported that with MGO at $440 per tonne and LNG at $250 per tonne, LNG-powered vessels would offer a cost savings of $55,000 per trip. Year 6 electricity With a conservative 28 trips per year, this represents a $1.5 million savings.

However, currently, there are supply concerns which can be likened to the chicken/egg dilemma. Gas oil mix ratio chart But those may be addressed in the near term as more regions are building LNG bunkering facilities.

Singapore is taking steps to position itself as an Asian LNG hub, which could be a big step toward solving that problem with the massive amount of traffic around that region.

Furthermore, the industry is expanding the use of LNG barges and pontoons which can reduce the costs of land based LNG bunkering facilities. K gas station jobs The cost of land based facilities is a major hurdle to overcome. Gas upper stomach But as FSRU’s have reduced regasification costs and development time allowing greater imports of LNG for consumption, these barges or pontoons, specifically designed as LNG bunkering facilities, could do the same, leading to more widespread adoption for vessels.

But according the Maritime Executive running “a converted marine diesel engine on methanol could be among the cheapest ways to operate in an Emissions Controlled Area.”

The Greater Baton Rouge Business Report notes that “by converting to methanol, large ocean going vessels can reduce sulfur dioxide emissions by 99%, nitrogen oxide emission by 60% and particulate matter by 95%.”

Finally, methanol bunkering stations can be up to 95% less in terms of cost vs. Electricity voltage in paris that of LNG. Cheapest gas in texas That is largely because methanol is easier to handle than LNG, as methanol is a liquid and does not require to be held frozen nor be under a specific set of pressures.

But perhaps the best option for a vessel with a long life ahead could be a conversion to a dual fuel system, which in some cases should be called multi-fuel.

The latest systems have the ability to run on LNG, LPG, methanol, HFO, marine diesel, or MGO. Gas utility bill Though expensive, if installed on a younger vessels, cost recovery won’t be an issue. Electricity usage But this looks more like a forward-looking technology that will most likely be utilized for newbuilds.

Furthermore, the option of utilizing various types of fuels would allow it to capitalize on varying costs and have a wide selection of service routes.

One final issue that needs to be considered is that many HFO bunkering facilities might not be capable of producing MGO even if they wanted. Electricity transmission loss This is due to outdated facilities and a limited availability of investment to upgrade these facilities.

Therefore, some major bunkering hubs which cannot meet these obligations to produce MGO may find themselves limited in supply or reliant of imports of MGO. Gas 2015 This creates either disruptions in the supply chain or another set of logistical challenges in managing proper imports to sufficiently supply vessels which use these terminals. 3 gases that cause global warming Meaning we could see a shift in trade flows or bunkering patterns.

Older vessels nearing the end of their service life will most likely pay for the higher priced MGO if they are to continue on the high seas. Electricity 1800s This appears to be a main source of demand. Gas bubble in back Another source for MGO demand will be those owners which lack the funds to carry out conversions or install scrubbers which can be initially costly, but provide a more attractive return over time. Electricity human body With credit and investment being tough to come by in the shipping segment due to historic turmoil in the dry bulk and container segments, this group of owners unable to carry out these improvements may be quite large.

It is also unclear to what degree refiners are willing or able to begin producing the required MGO. Gas up asheville This combination could create some very serious price distortions with regard to the HFO and MGO spreads.

While scrubbers appear to be the early favorite for vessels that will continue a service life long after the new IMO sulfur emission mandates take effect, other options exist to meet the requirements.

While the idea of LNG powered vessels has been gaining in popularity, methanol may be poised to take some market share as conversions are more cost efficient and bunkering facilities are much less expensive to establish.