TITLE: Odfjell to Lead Shipping Industry Compliance with Global Sulphur Cap

INGRESS: The global cap on sulphur emissions from ships comes into force in 2020, posing tough
challenges for deep sea transportation. Odfjell is set to use hybrid/alternative fuels.

TEXT

In just two years, a stricter global cap on sulphur emissions from ships will kick in, but the shipping
industry is still scrambling to undertake the massive changes needed to be compliant.

In contrast, Odfjell SE is prepared to use hybrid/alternative fuels to meet the new stricter requirements,
despite considerably higher costs. A leader in the global market of handling hazardous cargo, Odfjell
weighed its options carefully to come to this decision.

“At present, our most likely option is the use of hybrid/alternative fuels for the existing fleet,” said Knut
H. Holsen, VP of Odfjell’s Commercial Development.

“We have three alternatives: We can opt to install exhaust cleaning systems — or scrubbers. We can
retrofit the engines to burn LNG. Or, we can simply buy the more expensive compliant fuel or
distillates.”

“The first two alternatives represent a significant investment with a lot of uncertainty attached.
Meanwhile, the last alternative is likely to represent a significant increase in the voyage related cost,” he
said, noting that “it was not an easy choice” as it create a higher fuel bill for the company.

Residual Fuel Oil Drives Global Trade

Fuel is commonly a vessel’s main expense. Large vessels making long journeys — such as the 30,000 to
80,000 DWT; 40,000 to 80,000 CBM chemical tankers and super segregators in Odfjell’s fleet — can
easily use up 60,000 and 400,000 litres of fuel in one day, costing over US$1 million.

By using engines that burn residual fuels — cheap, heavy fuel oil — chemical tankers and cargo ships
keep the costs of ocean transport low enough to allow world trade to thrive.

But nothing has contributed more to shipping’s “dirty” image than this. Engines burning residual fuels
emit sulphur and nitrogen oxides that are harmful to human health and the environment. SOx emissions
form fine particles and inorganic aerosol gases that are harmful to humans. SOx and NO2 combine to
form sulphuric acid, a major cause of acid rain.

Marpol’s Annex VI

The International Maritime Organization (IMO), which works to reduce the harmful impacts of shipping
on the environment, has been setting progressively stricter limits on the sulphur content of fuel oils
used by ships.

In 1997, it adopted Annex VI (Regulations for the Prevention of Air Pollution from Ships) to the
International Convention for the Prevention of Pollution from Ships (Marpol Convention).

By January 1, 2020, Regulation 14 of the Marpol Annex VI will be implemented, requiring all ships to
burn fuel with a maximum fuel sulphur content of 0.5% — a steep drop from the current limit of 3.5%.
This will require shipping companies to make significant, and costly, changes.
Maximum permitted sulphur content in marine fuels within Emission Control Areas (ECAs), such as the
Baltic Sea area, the North Sea area, and the North American area, will continue to be capped at 0.1%.

“Sustainability is our responsibility” — Odfjell

According to Holsen, the industry expects the market to be short of compliant fuel.

To make up for the shortfall, higher priced distillates may have to be used, which will result in higher
cost of compliant fuel, he said. Experts estimate this at an additional US$200-US$700 per metric ton, he
added.

“This will result in an extra fuel bill of US$100 million or more for Odfjell Tankers,” he said.

In addition to the voyage related cost, Odfjell will face challenges with the segregation of the various
fuel grades, resulting in possible reconfiguration of bunker systems.

But Holsen is adamant that Odfjell will bear the higher cost because the company is serious about
carrying out its responsibilities, which include environmental ones.

“We have a responsibility to take care of the oceans we sail,” he insists. We have a responsibility to
minimize our environmental footprints.”

SUGGESTED SIDEBARS (can be hyperlinked)

Scrubbers

 Odfjell estimates the costs of installing scrubbers at US$3-5 million. This covers the upfront cost
of the scrubber, retrofitting costs, potential loss of cargo space on board, shipyard capacity to
meet installation demands and the training of crew to maintain the scrubbers.
 Estimated payback time for a scrubber: 2 to 4 years, assuming fuel prices forecasts are correct
 Scrubbers come in two general types — wet scrubbers or dry scrubbers. Wet scrubbers spray
alkaline water into a vessel’s exhaust to remove sulphur before it is released into the
atmosphere. Dry scrubbers expose dry reagents to exhaust stream, creating a chemical reaction
that removes the sulphur from the gas.
 Ships that opt to install scrubbers have the advantage of still using cheaper (high-sulphur) heavy
fuel oil (HFO). The price of HFO is expected to soften on the back of lower demand.
 Only scrubbers fitted with continuous emission monitoring equipment are acceptable.
 In the United States, scrubbers must also comply with requirements aimed to prevent water
pollution. Germany and Belgium have mandated that in some ports, ships can only use closed
loop scrubbers — where the washwater is treated to restore its alkalinity after it leaves the
scrubber then recirculated into the system, discharging little or no water from the scrubbing
process.
 Holsen expects less than 10% of the global fleet of about 85,000 vessels % to have a scrubber
installed by 2020.

Liquefied Natural Gas (LNG)

  Odfjell considers LNG retrofitting to be too challenging to be a realistic option for its fleet. The
price is very high, followed by the practicalities related to positioning of the fuel tanks, piping
etc.
 When used as a fuel, LNG significantly reduces the emission of SOx
 Traditionally used as a fuel on-board LNG ships only, it is now also used in other trades such as
short sea shipping
 2 Constraints to the use of LNG: cost of retrofitting propulsion units capable of burning gas and
the lack of port infrastructure to handle bunkering.
 An LNG bunker barge costs 5 to 10 times more than a liquid fuel barge.
 The biggest challenge for using LNG as marine fuel is methane slippage due to the incomplete
combustion of the methane in the engine. The global warming potential of methane is 25 times
higher than CO2. Thus, the release of even small volumes of methane can easily negate the CO2
reduction benefits of using LNG as a marine fuel.

Low-sulphur Fuel Oil (LSFO)

 Odfjell expects that sufficient compliant fuel will be available by 2020, but that prices will be too
high.
 Sulphur from residual fuels can also be processed away using hydroconversion or
hydrosulphurization technology. Improving hydrocracking technology in refineries is leading to
higher productions of LSFO.
 Low sulphur distillates can be blended with high sulphur residuals to create heavy fuel oil with
sulphur contents of 0.5% or less.
 Odfjell expects between 25 to 50 different grades of compliant fuel to be developed in the
market in 2020. Some may not be possible to mix, giving the owners and operators a serious
challenge of which fuels that can be stored on board and used.
 Blended LSFOs will, however, bring challenges of their own in the form of catalytic fines and
other impurities.
 The increasing demands for 0.5% m/m fuel is anticipated to drive its price up to 50% higher than
the cost of residual fuel.

Ozone depleting substances are also regulated under Annex VI but this has mostly affected firefighting
and refrigeration gases rather than normal ship operation.

CO2 is regulated indirectly under the Energy Efficiency Design Index (EEDI) rules and is not controlled in
the way that NOx and SOx are.

META: Odfjell SE gears up to lead shipping industry compliance with Marpol’s global sulphur emissions
cap in 2020.

TAGS: Marpol Annex VI, Global Sulphur Emissions Cap, Air Pollution from Ships, Deep Sea
Transportation Pollution, Ocean Pollution, Odfjell, Knut Holsen, Marpol Convention

PHOTOS/ILLUSTRATIONS:

 Map with Emission Control Areas

 Illustration of Scrubber
 Photo of Stainless steel super segregator at sea