consequences of the imos new marine fuel sulphur regulations

7/28/2019 Consequences of the IMOs New Marine Fuel Sulphur Regulations

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SWEDISH MARITIME ADMINISTRATION 14-5-2009

CONSEQUENCES OF THEIMOS NEW MARINE FUEL

SULPHUR REGULATIONS

SOURCE: VTI


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SWEDISH MARITIME ADMINISTRATION

SE-601 78 Norrkping

Tel: +46 11 19 10 00

Fax: +46 11-19 10 55

CONSEQUENCES OF THE IMOS NEW MARINE FUEL SULPHUR

REGULATIONS

Date: 2009-04-15

Our designation: 0601-08-03406


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Consequences of the IMOs new marine fuel sulphur regulations

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ContentsCONSEQUENCES OF THE IMOs nEW MARINE FUEL sULPHURREGULATIONS ............................................................... ................................................ 3Summary ............................................................... ............................................................. 3Mandate ................................................................................................. ............................ 8The IMO decision and EU Marine Fuel Sulphur Directive ......................................... 10Global scope .......................................................... ............................................................ 10SECA (Sulphur Emission Control Area) .................................................................. ......... 10EUs Marine Fuel Sulphur Directive ................................................................. ................ 11What is happening within the EU? ................................................................................ 12Results from the environmental impact study carried out in Finland ........................ 14Availability and pricing of marine fuel .......................................................... ............... 19Situation and possibilities of the refineries ..................................................................... .. 19

A crossroads for the refinery industry .................................................................. ........... 20Alternative fuels ................................................................... ........................................... 22Which road will the refinery industry choose for 2015? ................................................. 22

Use of scrubber technology ......................................................................... ...................... 23Prices ............................................................. ................................................................ .... 25Supply and demand for ship fuel up to 2020 .................................................................... . 28Bunker fuel price assumptions in the following work .................................................. 32Transfers to other modes of transport ................................................ .......................... 34Description of the freight model ..................................................................................... .. 34

Cargo groups ............................................................... .................................................... 34Demand for freight transportation ................................................................ ................... 34Vehicle and Ship types ............................................................. ....................................... 35Infrastructure restrictions ................................................................................. ............... 35Maritime transport network and costs ....................................................................... ...... 35

Base case scenario ............................................................ ................................................. 37Scenarios selected ..................................................................... ........................................ 38

Scenario 1 ....................................................................................................................... 39Scenario 2 ....................................................................................................................... 39Scenario 3 ....................................................................................................................... 40

Results from running of scenarios ...................................................................... ............... 40Results from Scenarios 2 and 3 .................................................................. ..................... 46

Conclusions ........................................................... ............................................................ 49Impact on industrial costs ................................................................. .............................. 51Forest industry costs ..................................................................... ..................................... 51Steel industry costs ............................................................ ................................................ 55Ferry market ............................................................................................................ .......... 57Consequences for the shipping industry .................... ................................................... 58


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Consequences for Swedish registered vessels ................................................................... 58Consequences for vessels calling at Swedish ports in 2008 .............................................. 59Cost increase a summary ................................................................. ............................... 64Effects on emissions of particulates .................................................................................. 64Safety and technical consequences for ship operation on entering/leaving the ECA

areas ................................................................................................................................. 66Engines .................................................................... .......................................................... 66Boilers ........................................................................................................................... .... 67Demands on the public authorities and other organisations ....................................... 69How to mitigate the effects for Swedish industry and shipping .................................. 71Annex 1............................................................................................................................. 72Charts of differences in tonnes compared with base case scenario ................................... 72


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Summary

In October 2008, the IMO adopted tighter limit values for the sulphur

content of marine fuels. The new regulations mean that the limit value for

sulphur in the Baltic Sea, the North Sea and the English Channel (so-called

sulphur control areas or Sulphur Emission Control Areas [SECA]) is finally

lowered to 0.1% by weight in 2015 and globally to 0.5% by weight in the

year 2020 or, depending on fuel supply, at the latest by the year 2025.

This report has concluded that the availability of low-sulphur fuel will be

sufficient after the year 2015. This is an assessment that is shared by the

Finnish environmental impact study, the Swedish petroleum industry as well

as analysts in the USA/Canada in relation to their joint application toinstitute an Emission Control Area (ECA) off the North American coast.

Efforts should be made within the EU, in the first place, to include in future

all those EU areas that are not, at the present time, covered by lower sulphur

content requirements.

In the analyses that have been made of the consequences for both Swedish

industry as a whole and for the shipping industry, the starting point has been

the price level that was applicable during October/November 2008. For

crude oil, the price then was about 60 USD/barrel (159 litres). Calculations

concerning a future price for marine fuel are based on the January 2009

forecast of the IEA (International Energy Agency) where a crude oil price of

100 USD/barrel was adjudged to be reasonable in 2015.

In the analyses concerning the risk for the transfer of freight from maritime

transport to land transport, which were conducted by the Swedish National

Road and Transport Research Institute (VTI) on behalf of the Swedish

Maritime Administration (Sjfartsverket), two scenarios have been run

where the crude oil price has been adjusted upwards by an additional 75 and

150% respectively. It has been here assumed that a change in the crude oilprice is fully translated into the price for marine fuel.

The results of the three different scenarios which have been run to

investigate the risk for the transfer of freight from sea to land show that

transfers of freight from ship to both truck and train will indeed take place.

An increase in road transportation would seem to be less desirable from an

environmental viewpoint, particularly bearing in mind the policy documents


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drawn up within the EU for example, that clearly express the desire to bring

about greater marine and rail transportation.

In Scenario 1, marine transportation measured in tonne-km is estimated todecrease by two per cent at the same time as transportation by rail is largely

unchanged while road transportation increases by about two per cent. In

Scenario 2, the transport performed declines by no less than seven per cent

for shipping whereas rail and road transportation increase by eight per cent

and two per cent respectively. The effect in Scenario 3 on transport

performed is a decline for shipping of ten per cent and an upturn for rail and

road transportation of five and six per cent respectively.

There is also a certain risk that the cost increase for shipping in Finlandbrings about an increase of transit truck traffic through Sweden for onward

transport from e.g. the port of Gothenburg or via the ferry/resund bridge

with the associated environmental impact. This has not been given detailed

consideration in this report.

It must be pointed out that the model that is used in the task of calculating

transfers from shipping to land transportation is a test version of the freight

model jointly developed by the national transport agencies and SIKA

(Swedish Institute for Transport and Communications Analysis). This model

has, nevertheless, been assessed as being able to satisfactorily estimatetransfers between transportation types. A certain corroboration of the model

has been carried out through certain actual transport operations being

compared with the outcome of the model operations.

All in all, the estimates of the effects on the shipping industry that have

been made indicate an increase in the fuel costs of about 50-55% in 2015,

assuming an unchanged crude oil price. For vessels that mostly transport

cargoes between ports within SECA, the increase in the fuel costs may,

however, amount to around 70%. The total increased cost for the ships thatcalled at Swedish ports during 2008 has been estimated at about SEK 13

billion for 2015. At the same time, sulphur emissions decline by 79 500

tonnes, corresponding to a socioeconomic benefit of SEK 4 billion.

Examples show that bunker fuel costs comprise between 40 and 50% of the

total expense of operating a vessel. Therefore, the more expensive fuel will

entail increases in shipping transport costs by an average of 20-28%.

Manifested in terms of transported freight, the increase has been estimated

at between SEK 20 and SEK 100 per tonne. The relatively large variations


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are due to differences in the transport set-up, the size of vessels and filling

ratios as well as the existence or not of return cargoes. For certain transport

shipments the increase in the marine transport cost may be slightly higher

than the 20-28% that is shown above.

For a ferry line with passenger vessels in traffic between Stockholm and

Turku (bo) in Finland, currently using fuel with a sulphur content of 0.5%

by weight, the additional cost is estimated at SEK 41 m. or in passenger

terms at SEK 20.50 per passenger. The annual emissions of sulphur have

been estimated to decline by just over 110 tonnes, equivalent to a

socioeconomic benefit of SEK 5.5 million. If one assumes that this ferry

line has operated its vessels on a fuel with 1.5% by weight sulphur content,

the additional cost amounts to SEK 75 million or SEK 37.50 per passenger.

The Swedish Maritime Administration sees certain difficulties in

transferring the increased cost on to the buyers of transport through

increased prices, since Swedish shipping competes in a global market with

varied requirements in respect of the sulphur content in bunker oil in

different parts of the world. The cost picture is therefore not the same in

competing countries and there is an evident risk that profit margins will

shrink in the distorted competition situation that the IMOs new regulations

imply; profit margins that already today are very small.

The difference in costs demonstrates the need, at a high level, to pursue the

issue of instituting new control areas outside SECA and the proposed

Emission Control Areas (ECA) since this is no longer merely an

environmental question but a question of finding a balance between

environmental measures and fair competition for Swedish industry primarily

within Europe but also globally.

Over and above the socioeconomic benefits of reduced sulphur emissions,

there is the added benefit of reduced particulate emissions which areexpected to decline by almost 80-85%. The decline in larger particulates ( PM 10) and has an

effect primarily on the immediate environment. Better fuels and higher

injection pressure in the fuel system for modern engines normally leads to

the particles formed being very small (< PM 1.0). These small (micrometer


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sized) particulates tend to remain hovering in the air for a longer time and

therefore disperse over larger areas. By their character they are more prone

to penetrate more deeply in the lung tissues and reach the blood circulation.

It is, however, very clear that the decrease and change in particulate

emissions is of great importance and health-promoting. Particulate

emissions from marine diesel engines and its consequences are an area that

in recent time has acquired ever increasing attention. It may be stated that

the problem area requires more research since studies carried out are still not

of a scope for certain conclusions in all respects to be drawn (Fridell, IVL).

The lower sulphur content allows certain technical measures, adopted in

ships to achieve lower emissions, to secure better preconditions for

application and may therefore become relevant in the long term. This is notleast caused by the fact that particulate emissions of so-called black carbon

(soot) and its significance in the ever more rapid melting of glaciers and

polar ice is being brought into focus. The latter is an issue that is noticed in

the Arctic co-operation, not least through the fine particulates being carried

on the wind and weather systems across large distances thereby constituting

so-called long-range, trans-boundary air pollution.

Emissions of particulates in the Baltic Sea and North are calculated by the

consultancy company IIASA, in a report in 2007 for the EU Commission, at

26,000 and 61,000 tonnes respectively. A reduction by 80% would therefore

reduce the emission of particulates by about 21,000 and 49,000 tonnes

respectively. With a valuation of between 12,000 and 35,000 Euro/tonne for

the Baltic Sea and between 28,900 and 80,000 for the North Sea, which is

used by the EU Commissions CAFE-program (Clean Air For Europe), the

socioeconomic gain from the particulate reduction, (with a Euro exchange

rate of SEK 11) is estimated at between SEK 2.8 billion and SEK 8.1 for the

Baltic Sea and SEK 15.6 billion and SEK 43.1 billion for the North Sea. All

in all, this means an enhanced socioeconomic benefit of between SEK 18.4

billion and SEK 51.2 billion.


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Safety and technical consequences for ship operation on

entering/leaving the ECA areas

Engines

The sulphur content in ship fuel as well as its viscosity is of great

importance for the diesel engines fuel system. Distillate fuels, by nature,

are considerably drier than heavy fuel oil and require little preheating in

order to obtain a viscosity suitable for injection in the combustion chamber.

The sulphur content in the fuel also contributes to lubricating moving parts

in fuel pumps and fuel valves.

The high injection pressure in modern diesel engines makes high demandson minimal tolerances (play) in order thereby to minimise the fuel leakage.

Situations with binding and increased wear and tear in fuel pumps and fuel

valves were not wholly uncommon within the road vehicle fleet in

connection with the early introduction of environmental fuel caused by this

dry fuels more or less lacking sulphur as well as the high kerosene content

(paraffin about 70%). This problem is eliminated through e.g. admixtures of

lubricating additives in the fuel in combination with an improved material

selection for moving components in the fuel systems. A similar

development is expected where ship engines are concerned. However, there

occur a number of problems for those vessels that through their traffic

pattern enter and leave SECA and therefore will probably shift from heavy

fuel oil operation to operation with low-sulphur distillate fuel.

In ship engines the fuel systems tolerances are generally adapted for a fuel

oil temperature of 130-140 oC. In the case of alteration to low-sulphur and

cold distillate fuel, certain gasification (vaporisation) in fuel pipes,

preheaters and pumps can be expected also where care is taken. For this

reason, the change should take place under controlled conditions and under

low load of the main engine so as not to cause regulator problems, loss ofindividual cylinders with overloading of others as a consequence as well as

risk of binding and abnormal wear and tear through too fast an introduction

of low-viscose fuel on to heated areas in hot fuel pumps.

In connection with the introduction of heavy fuel oil as ship fuel during the

1960s and subsequently when the engines were really designed to be driven

with mixed fuel oils, so-called intermediate or marine diesel oil, this

change from heavy fuel oil to diesel was the normal procedure prior to every

port visit. The need for corrective measures was caused by the fact that


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heavy fuel oil otherwise congealed in the fuel pipes and therewith risked

damaging pumps and camshafts through its inability to be compressed.

Fairly soon, recirculation was arranged in the fuel systems with heating with

the engine idle so that heavy fuel oil could be used also in manoeuvring and

in port. Rinsing of fuel systems with marine diesel oil nowadays takes place

normally only for shipyard visits.

Where there is a need for updating of the fuel system through the leakage of

gasoil being much too widespread, manufacturers should be able to supply

replacement parts without major difficulty through fuel pumps and fuel

valves, even in normal operation, being exposed to wear and tear and

therefore being replaced or renovated at regular intervals. Modern regulating

systems for control of the fuel viscosity should also be able to reducedamage connected with alteration between heavy fuel oil and gasoil. For

four stroke trunk piston engines that operate exclusively within SECA a

changeover is required of the system lubricant oil to an oil with a lower

reserve alkalinity number or Total Base Number (TBN) adapted for the

lower sulphur content since the sulphuric acid-neutralising additives may

otherwise be deposited on the cylinders and therewith damage pistons and

piston rings.

This also applies to the cylinder oil for 2 stroke cross-head marine engines,

where ships that go in and out of SECA and therefore change over fuel

frequently, should have two different tanks with cylinder oil. One of the

tanks is for low-sulphur fuel and the other is for high-sulphur fuel.

Boilers

Another safety problem to which attention should be drawn, caused by the

changeover from heavy fuel oil to distillate fuel, is the risk for boiler

explosions. The differences in the drip ignition point between heavy fuel oil

that ignites at about 180-200 oC in contact with hot surfaces compared with

450-500 oC for gasoils, mean that there exists the risk of build-up of an

explosive carbonised atmosphere in a boiler during changeover of fuel. In

the case of boiler trip (stop of firing) it is of the utmost importance, at the

earliest opportunity, to stop the fuel supply in particular of gasoil and

subsequently to ventilate very carefully before a new ignition attempt is

made.

The problem can be overcome by technical means through a special pilot

burner that ensures a flame during the changeover as well as through


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awareness of the problem in association with rigorous safety and operating

procedures.


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Demands on the public authorities and other organisations

Controls of compliance with the decision, i.e. that those vessels that are in

traffic in a SECA area after 1 January 2015 do not operate on a fuel with asulphur content that exceeds 0.1% by weight, can be very difficult to

implement to a satisfactory extent. While waiting for full development and

capacity for large-scale use of the technology that is now being tested in co-

operation between the research world and the Swedish Maritime

Administration, that implies quota measurement of SO2 and CO2 in the flue

gases from vessels, there only remains the possibility of clarifying through

Port State Control on which fuel the vessel is operating on this occasion.

Controls take place through a ship inspector (Port State Control

Officer)checking the bunker fuel receipt and the data in the ships engine-room log and oil record book where information on position and exact time

for change of fuel as well as which bunker tankers were used must be

entered. Thus, an experienced inspector is able to establish whether the

vessel contravened the regulations. When the method for quota

measurement of the flue gases is available on a large scale those vessels

with too high a sulphur content can be selected for a more extensive control

on next arrival in port.

The IMO decision includes no sanction facilities whatsoever in the face of

infringement of the sulphur levels in the bunker oil. The procedure that

applies is that violations shall be reported to the IMO in order subsequently,

as in the procedure in the case of e.g. the formal prohibition against a vessel

continuing to operate in connection with Port State Controls, to be

published, in most cases, on a so-called black list.

In the Swedish Act (1980:424) on Prevention of Pollution from Ships,

sanction facilities have been introduced in Swedish legislation where any

operator that deliberately or through negligence is in breach of the

regulations may be sentenced to fines or imprisonment for a maximum oftwo years. In certain cases an administrative fee, called water pollution fee,

may be charged to the shipping line that contravened the regulations on

discharge of oil in the water.

One proposal is that the government also in this case introduce sanctions in

Swedish legislation in the form of a charge. The level of the charge should

be very high in order to prevent shipowners deliberately and systematically

operating on high-sulphur oil wherein the profitability exceeds the cost of

paying a fee for contravening the regulations. An additional and possibly


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more effective measure is to publicise violations in accordance with the so-

called name and shame principle.


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How to mitigate the effects for Swedish industry and shipping

In 2015, the cost increases will be relatively large when the Swedish

shipping industry, and shipping using Swedish ports, will be forced to useabunker oil with a maximum 0.1% sulphur content by weight. The

transportation cost is estimated to increase by between SEK 20 and 100 per

tonne and the marine transport cost by between 18 and 28%.

Against the background of an evident risk for transfer of goods from

shipping to both rail and the worse environmental alternative i.e. road, as

highlighted in previous sections, it is proposed that measures are adopted in

order to alleviate the effects of the IMO decision.

It is not the task of the Swedish Maritime Administration, within the

framework of this assignment, to propose possible measures but the ideas

below have been emphasized by certain of the organisations participating in

the expert group. These should only be viewed as a sample of conceivable

measures in order to secure the supply of marine fuel at a reasonable cost for

Swedish industry and not as concrete proposals on the part of the Swedish

Maritime Administration.

a) Transport subsidies to ports in e.g. Bothnian Sea and Gulf of

Bothnia.b) Increased funding for research and development of alternative fuels,

better purification methods and development of more efficient

engines.

c) Investment grants with same focus as in b) above.

d) Reduced fairway charges (requires increased grant to Swedish

Maritime Administration).

e) Fully internalise the environmental effects for all modes of transport.

f) Tax-free shoreside electrical supply to ships.

g) Through international collaboration between the Baltic Sea countriesto take up the question at EU level for appropriate action.


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Annex 1

Charts of differences in tonnes compared with base case scenario

Below are charts that show the difference in transported tonnage between

the base case scenario and Scenario 3. These are followed by charts that

show decreases and increases respectively for road transportation for each

scenario compared with the base case scenario. All charts are obtained

through the project undertaken by VTI (Swedish National Road and

Transport Research Institute) to analyse the risk of freight transfers from

marine transport to rail and road transport.


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Figure 1: Estimated difference in tonnes of freight by sea in Scenario 3 compared with base case

scenario


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Figure 2: Estimated difference in tonnes of freight by rail in Scenario 3 compared with base case

scenario


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Figure 3: Estimated difference in tonnes of freight by road in Scenario 3 compared with base case

scenario


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Figure 4: Estimated decrease in tonnes of freight by road in Scenario 1 compared with base case

scenario


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Figure 5: Estimated increase in tonnes of freight by road in Scenario 1 compared with base case

scenario


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scenario


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scenario


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scenario


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scenario


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consequences of the imos new marine fuel sulphur regulations

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