Costs, some logistics still anybody’s guess
By JULIE GEDEON
July 5, 2010
While the shipping industry favours the Emission Control Area (ECA) designated for most of North America, it continues to question some of the practicalities.
On March 26, the International Maritime Organization (IMO) approved the joint American/Canadian ECA application within the quickest possible timeframe. The zone to be designated as of August 2011 will extend 200 nautical miles from the Pacific, Atlantic and Gulf coasts of the U.S. (excluding Alaska), Canada’s seacoasts (without the Arctic), French territories within North America, and the eight main Hawaiian Islands.
When the ECA becomes enforceable in August 2012, vessels operating within the zone must use fuel with no more than one per cent sulphur content or achieve the equivalent in emissions reduction through cleaner engine technologies. The sulphur content or its corresponding reduction must be cut to 0.1 per cent by 2015.
Undetermined expenses
The Shipping Federation of Canada laments the lack of economic analysis presented as part of the ECA application. “It was based on projected increases in fuel prices only,” said Caroline Gravel, the Federation’s director of environmental affairs. “We would have liked to see the financial implications of the various aspects of implementing the ECA, including the necessary technological requirements, costs of additional engine maintenance, the labour and time required to make fuel transitions – all of which is expected to vary widely from ship to ship.”
Ms. Gravel also noted that most of the research done for the application was based on analyses of West Coast trade routes. “It was assumed the situations are similar on the East Coast and I can tell you they’re not,” she said. “So I think there were some real shortcuts taken.”
Stephen Brown, president of the Chamber of Shipping of British Columbia, continues to doubt the cost-benefits rationale of extending the zone for 200 nautical miles rather than the 50 on which California based its air-quality research. “We haven’t seen any compelling justification for 200 nautical miles and still consider this draconian,” he said. “There’s real apprehension about the additional cost that will have to be carried by Canada’s export cargoes as a result of the much higher-priced fuel that will have to be used within that much larger zone.”
Last January, the consulting firm Transport Mobility Leuven and Antwerp University’s Institute of Transport and Maritime Management completed a fuel-costing analysis for the European Community Shipowners’ Association. They pegged the price difference between low-sulphur fuel oil with 1.5 per cent sulphur and marine diesel oil (MDO) with 0.1 per cent sulphur as fluctuating between 40 and 190 per cent, with the long-term average putting MDO as 87 per cent more expensive.
The shipping and petroleum industries are questioning whether the reduction to 0.1 per cent is the best environmental strategy. “Removing sulphur from heavy fuel oil requires huge quantities of pressurized hydrogen which is a tremendously energy-intensive process,” noted Gilles Morel, fuels director at the Canadian Petroleum Products Institute. “The greenhouse gases produced can be substantial.”
Black lines indicate Emission Control Area designated for most of North America.
Motivations lacking
Bunker fuel processed in Canada now varies between one and 1.5 per cent in sulphur content. No facilities exist at present to process below one per cent and the economic motivation to build them might be lacking.
“Fuel suppliers are having some trouble justifying investments that some estimate as high as $2 billion to upgrade refineries when they don’t know whether shipowners will use that distillate fuel or choose technological solutions permitted under the IMO’s MARPOL Annex VI to achieve the lower emission levels,” Capt. Brown said.
Even if they started immediately, it would take refineries at least three years to build the necessary processing units, Mr. Morel said. “This doesn’t mean that supply doesn’t exist,” he emphasized. “It just isn’t available locally and would have to be imported from elsewhere for direct use or, more likely, blending.”
The question is whether it will continue to be worthwhile for refineries to supply the marine sector. Petroleum companies have traditionally spared themselves the cost of refining the five- to 10-per-cent heavier residue in every barrel of crude by cheaply selling this unprocessed by-product to the marine industry and large facilities such as hospitals and universities.
“Now petroleum companies are being asked to spend millions of dollars to build processing units to remove the sulphur when chances are the market is unlikely to reward their efforts,” Mr. Morel said.
European and Gulf Coast refiners are opting to use the pressurized hydrogen process to convert bunker into higher-priced gasoline, diesel or jet fuel. If this becomes the dominant trend, it could result in fuel shortages for the marine sector or cause prices to skyrocket.
Conflicting standards
Investment uncertainty is also being generated by the U.S. and Canada now having different fuel standards. The U.S. has allowed for the creation of a new marine fuel with 1,000 parts per million of sulphur. In Canada, the amount permitted under the Canadian Environmental Protection Act is only 15 ppm.
“When markets are so integrated with ships going back and forth it only makes sense to harmonize standards,” Mr. Morel said. “Otherwise, we might have Canadian ships fuelling in the U.S.”
Along with being less costly, a 50-nautical-mile zone would enable most ships to carry the necessary fuel without problem, whereas 200 nautical miles requires most vessels to undergo significant modifications to create additional tank space.
The fast-approaching deadline for ships to make the necessary modifications is another source of consternation. “For some ships, it’s relatively simple to install additional segregated fuel tanks, but for others it won’t be easy at all,” Ms. Gravel said.
“Scrubber and other technologies are now available but by no means tested or ready for wide-scale implementation,” she added. “So ECA requirements initially at least will have to be met by using lower sulphur fuel.”
No one has done an inventory of the ships involved or the cost of readying them, as far as Capt. Brown can tell. “I think it’ll come down to individual owners looking at the cost of conversions versus the alternative of simply not making those ships available for trading in North America,” he said. “With the global regime progressively moving towards low-sulphur fuels, however, one assumes all ships will eventually be converted.”
In the meantime, he suggested that some countries might capitalize on an uneven playing field. “Australia, for example, doesn’t seem to be making any move towards using more expensive low-sulphur fuels,” he said.
Mechanical blips
Technical difficulties might cause implementation delays. U.S. Coast Guard officers have already expressed concern about propulsion failures arising during the switch from heavy to low-sulphur fuel.
“California’s Air Resources Board has already granted some dispensations pending the conclusion of ‘essential modifications’ to burn low-sulphur fuels, particularly in boilers,” Capt. Brown noted. “Although the European Union has required 0.1 per cent sulphur content for ships alongside harbours since January, implementation has been sporadic because countries have recognized it will take a while longer before ships can actually burn this lower sulphur fuel.”
The B.C. Chamber of Shipping is uncomfortable with the regulations making the owner of a bulk carrier legally responsible for having and using the proper fuel when it’s typically a vessel’s charterer that obtains fuel. “This will be a topic of much discussion between shipowners and charterers,” Capt. Brown predicted.
It also remains unclear what will be deemed as reasonable best efforts to obtain the necessary fuel if it’s unavailable at the port of departure. “Will a 12-hour deviation be considered reasonable? Or 24 hours? Or three days?” Capt. Brown said with the hope that an economically feasible amount of time will be harmonized by Transport Canada and the U.S. Coast Guard. “If that’s left to the discretion of the individual port-state control officer it will obviously breed a lot of uncertainty,” he said.