“global sulphur cap 2020” faq
TRANSCRIPT
“Global Sulphur Cap 2020” – FAQ
Bunkering Department 1
1. Global Sulphur Cap 2020, what is it?
In 2008, the IMO1 (International Maritime Organization) set a maximum sulphur
content of 0.5% for marine fuels from 1 January 2020 throughout the world (except in
specific ECA3 zones: 0.1%).
For reference, this global limit had already been reduced from 4.5% to 3.5% on 1
January 2012.
2. Will this 2020 regulation on sulphur content in marine fuels have an environmental
impact?
Yes. With an annual consumption of approximately 170 million tonnes of high-
sulphur fuel oil8, the shipping industry is currently emitting around 8 million tonnes of
sulphur oxides (SOx)4 per year into the atmosphere. The new emission limit set at
0.5% by the IMO1 will permit a reduction of over 80% of these emissions.
The benefit to the environment and public health, particularly for populations living
near ports and coasts, will be considerable. Sulphur oxides are accountable for
respiratory problems and acid rains.
3. What happens in the ECAs3 (Emission Control Areas)?
On 1 January 2015, the IMO1 had already set a limit of 0.1% sulphur content in marine
fuels consumed in the areas specified in Annex VI of the MARPOL Convention2.
These areas today are the North Sea and the Baltic Sea, and the coastal areas around
the United States (including Puerto Rico and the Hawaiian Islands) and Canada.
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These areas remain unchanged to date, and the 2020 regulation does not change
their limit.
4. Are there predications for changes to the environmental regulation after 2020?
Yes. With regard to sulphur oxide (SOx)4 emissions, new 0.1% ECAs3 are expected to
be adopted between 2020 and 2025 (China, Caribbean, Mediterranean Sea?).
Moreover, the issue of a new phase in global threshold reduction from 0.5% to 0.1%
will arise (towards 2030?).
The NOx5 Tier III (- 75% nitrogen oxide emissions) regulation currently applies in
North America to vessels built after 01/01/2016. It will be followed by Northern
Europe in 2021 for vessels built from 01/01/2021. It is reasonable to envisage that
other areas will develop around 2025-2030.
“Climate Plan”: On 13 April 2018 the IMO1 adopted a roadmap on CO26 emissions,
requesting a reduction in these emissions of at least 50% in absolute value between
now and 2050 (compared to 2008 levels). This plan also predicts a reduction in CO26
emissions per “transport unit” (per TEU and per kilometre travelled) of at least 40%
by 2030, with this effort continuing up to 70% between now and 2050.
5. Does this new regulation apply to all shipping companies?
Yes. The whole of the shipping industry is affected by this regulation on sulphur
content in marine fuels: passenger transport, cruises, transport of goods in bulk or in
containers, etc.
“Global Sulphur Cap 2020” – FAQ
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6. Is this new regulation applicable throughout the world?
Yes. This regulation applies to all navigation zones, except for the ECAs3 referred to in
Annex VI of the MARPOL Convention2, in which the sulphur content limit in
consumable marine fuels is set at 0.1%.
7. What solutions permit compliance with the 2020 regulation on sulphur content in
marine fuels?
Several solutions are contemplated by the shipping industry to comply with the
future regulation:
• Use low-sulphur fuels (max. content 0.5%);
• Install exhaust gas cleaning systems called scrubbers9 on the vessels.
This equipment allows high sulphur fuels (i.e. HFO 3,5%) to continue to be
used, and it “scrubs” the exhaust gases so as to reduce the sulphur oxide
emissions to levels equivalent to those generated by low-sulphur fuel oils8 (i.e.
VLSFO 0.5%, or even ULSFO 0.1% in ECAs3 depending on the type of
installation);
• Use alternative fuels, such as liquefied natural gas, or possibly methanol
already used on some “short sea” services.
8. What exactly is a scrubber9? How does it work?
The principle of the scrubber9 (or EGCS Exhaust Gas Cleaning System) involves passing
the exhaust gas flow of an engine (main engine and/or auxiliary engines) through a
sea water “shower”. The water droplets atomised in a cloud capture the sulphur
molecules and a large proportion of the fine particles present in the exhaust gases.
There are three types of scrubber9:
• Scrubbers9 which only operate in “open loop”,
• Scrubbers9 which only operate in “closed loop”,
• Hybrid scrubbers9 which can operate either in open loop or in closed loop;
“Global Sulphur Cap 2020” – FAQ
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• When the system is operating in open loop, the physical and chemical
properties of the seawater convert the sulphur oxides from the fumes into
sulphates. The remaining sulphur oxides are in this way removed from the
exhaust gases, which then complies to the emission limit of 0.5%.
All of the wash water flow, rich in sulphates, is discharged into the sea. The
quality of this discharge water complies with the environmental standards set
by the IMO1 in its resolution of 15 May 2015 (MEPC 259).
It is important to note that sulphates are naturally present in water.
• On some installations, the system can operate in closed loop mode. In this
case, the addition of a chemical (caustic soda or magnesium oxide or sodium
carbonate) enables the sulphur content of emissions to be reduced to 0.1%,
and thus permits compliance with the limit imposed in an ECA3. The wash
water in the circuit is then treated by filtration, generating waste which is
discharged and retreated on land.
Salt Sea water
Calcium1,2% (0,42 g)
Magnesium3,7% (1,3 g)
Potassium1,1% (0,39 g)
Other components0,7% (0,25 g)
Salt3,5% (35 g)
Quantities for 1 Kg of sea water
Sulfate7,7% (2,7 g)
Chlorine55% (19,25 g)
Sodium30,6% (10,7 g)
Water96,5% (965 g)
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9. Will there be checks once the regulation comes into force?
Yes. Vessels will have to modify her IAPP (International Air Pollution Prevention)
certificate from the administration of the country of registration (flag state). This
certificate contains a section stating that the vessel uses a fuel whose sulphur content
does not exceed the applicable limit, or that it is equipped with a scrubber9 with
approved operation.
The port authorities, and also the administrations of the different countries, may at
any time:
• Check the validity of these certificates;
• Check the delivery note for the fuels that are on board the vessels (which must
state the sulphur content); samples may be taken and analysed for verification;
• Use aerial surveillance methods (aircraft or drones) to identify potential
violations.
10. Are exemptions possible?
No. Except in case of emergency situations involving the safety at sea, the vessel may
be not compliant in order to preserve life and vessel.
11. Are there penalties if the regulation is not observed?
Yes. The IMO1 does not have authority with regard to penalties or fines and so has
not itself established a suppression framework, but has delegated this responsibility
to the port authorities, governments and countries of registration of the vessels.
Non-compliance with the regulation, once ascertained, will lead to legal processes
and criminal proceedings against the captain and the company operating the
incriminated vessel.
12. Is there a significant financial impact for shipping companies? For CMA CGM?
Yes. Whatever the chosen compliance solution, the financial impact will be very
considerable.
• If the scrubber9 solution is chosen, the fuel will continue to be the current 3.5%
sulphur residual fuel oil8. However the investment is high and the operating
and maintenance costs of this equipment are substantial.
Moreover this solution is not immediate, and entry into service takes about 12
months (from manufacture to installation on board).
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• Recourse to LNG10 involves a heavy investment, and is currently best viable on
newbuild vessels. Also, although natural gas is a cheap energy, its liquefaction
and logistics are very expensive (LNG10 is stored and transported at -160°C).
13. Do we have a precise idea of the impact per TEU transported?
For the moment it is difficult to anticipate a precise impact by slot cost and by trade,
because of the limited visibility on marine fuel markets after 1st January 2020.
We can estimate that the average impact per TEU for the Group, for all services
together, will be on average 160 USD per TEU transported.
14. What will the oil companies and marine fuel suppliers do?
The marine fuel currently consumed is a residual fuel oil7 with a sulphur content of
3.5%.
Removing sulphur from these residues to a level of 0.5% requires very heavy
investment on the part of refiners, who in most cases do not obtain an economic
return.
Consequently refiners and suppliers tend towards mixes of refinery intermediate
products7 which provide a marine fuel that complies with the future standard. The
main bases of these future fuels will be products of the gasoil family, with a low
sulphur content after the various refining7 processes.
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15. Will oil companies not adapt and enable shipping companies to procure marine
fuels without an increase in costs?
Refiners’ investments are directed towards the production of products with a high
added value (gasolines, naphtha’s, jet fuels, etc.). No targeted adaptation is envisaged
to specifically meet the demand of the shipping industry.
The solutions proposed by the oil industry will be mixes of refinery intermediate
products7, whose main components will be products of the gasoil family.
In theory, a mixture of 0.1% gasoil and residual fuel oil8 with a sulphur content of 3%
should contain 87% gasoil, so the final mixture only contains 0.5% sulphur and
complies with the future standard. In practice the mixtures are even more
complicated for reasons of compatibility between products.
Consequently, the prices of future marine fuels will be similar to gasoil prices, and the
shipping industry will see its fuel costs multiply by 1.5 to 2.
16. What is CMA CGM's strategy to be compliant with the 2020 regulation?
CMA CGM will comply strictly with the future regulation from 1st January 2020.
• Either by using 0.5% sulphur content marine fuels (and 0.1% in ECAs3), which
will constitute at least 95% of our procurement;
• Or by opting for alternative solutions which comply with the regulation,
namely:
o Consumption of high-sulphur fuel oil8 for vessels of the Group equipped
with scrubbers9,
o Consumption of LNG10 for the future 9 x 22000 TEU, the delivery of
which will start from 2020.
In fact CMA CGM is examining all the possibilities of adaptation that will permit
compliance with the 2020 regulation. Installing scrubbers9 is one of these options.
To validate the use of this technology, CMA CGM has decided to equip three new ice-
class 2500 TEU (CC PREGOLIA class), deployed in 2018 on the Baltic services, two
16000 TEU, CC Jules Verne and CC Alexander Von Humboldt, and also a 14000 TEU
APL Lion City class, with hybrid scrubbers9 that can operate in either “open loop” or
“closed loop”.
CMA CGM has also chosen innovation in the world of container transport, by deciding
on LNG10 as the marine fuel for its future 22000 TEU.
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This choice must be considered as part of the long-term strategy of the CMA CGM
Group to comply with future regulations, and to demonstrate the importance the
Group gives to environmental protection.
17. Is there a risk of explosion on LNG vessels10?
No. LNG carriers have been transporting and consuming LNG10 for several decades
with no major accident arising.
However as LNG10 is a novelty in containerised maritime transport, this means
conducting risk studies and introducing specific safety procedures, both by the vessel
and by the port authorities.
These studies, called HAZID11 and HAZOP11, are currently in progress with our supplier
TOTAL, at all ports that are likely to accommodate our vessels with LNG10 propulsion.
18. Will changing to LNG10 give a significant competitive advantage to CMA CGM?
Yes and no!
Although the price of LNG10 is, and should remain, lower than the price of
conventional marine fuels (0.5% or 0.1% low-sulphur fuel oil8 and gasoil), the cost of
building the future 22000 TEU is higher than for conventional vessels.
In terms of cost slot, the oil and gas market assumptions considered at the time of
making the investment decision in October 2017 give a slight advantage to LNG
vessels10.
However, it is important to note that the consumption of the 9 future 22000 TEU, all
deployed on FAL 1 from April 2020, will only represent 3 to 4% of the Group's total
consumption.
As the proportion of LNG10 is still marginal for the moment, there is no real
competitive advantage in this choice.
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19. Used in “open loop” mode, is the scrubber9 solution not a polluting solution?
No. Even though in “open loop” mode the exhaust gas wash water is discharged into
the sea, the physical and chemical properties of the seawater convert the sulphur
oxides in the exhaust gases into sulphates. These sulphates are naturally present in
seawater (see Q8).
For information, the American cruise ship company Carnival has already installed
scrubbers9 on around 80 ships in its fleet. The management of Carnival, sensitive to
the image that could be conveyed by the “open loop” technology, in 2017 voluntarily
participated in a programme of analyses of the discharged water conducted by the
Norwegian classification society Det Norske Veritas (DNV GL). The results of this
programme are entirely satisfactory
(read: https://ibia.net/carnival-committed-to-egcs-as-its-2020-compliance-solution/)
For the 6 scrubbers9 already in the fleet or for the future, CMA CGM has chosen a
hybrid technology, that can operate in “open loop” and in “closed loop”.
20. Will CMA CGM receive grants to bring itself into compliance with the 2020
regulation?
In connection with the choice of LNG10 for its future 22000 TEU, CMA CGM has filed
with its supplier, TOTAL, and the Dunkirk Terminal, a joint application for a grant from
the European Union.
If a grant is provided by the EU, it will only be due for the proportion of time spent by
these vessels in European waters.
The overinvestment required by the changeover to LNG10 will not be fully covered by
the grant, should it be received.
21. Will customers pay more for maritime transport services?
Yes. After 1st January 2020, the freight market will find a new balance incorporating a
fuels cost which will be considerably higher than the current cost.
This increase in freight cost will be necessary, also for the shipping companies which
will be able to obtain the cheapest fuels (high-sulphur fuel oil8 with scrubber9 or
LNG10) but will have large investments to finance.
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22. How much more will customers pay? What is today's evaluation of this extra cost?
Each shipping company will determine its method:
• Either a higher all-in freight rate,
• Or a specific bunker surcharge,
• Or the current Bunker Adjustment Factor (BAF)13 with a substantial upwards
revision.
The extra cost cannot be known yet, as the composition and price of future 0.5%
sulphur marine fuels do not exist yet.
An estimate could be made as soon as the first significant transactions on these fuels
start (2nd or 3rd quarter of 2019).
Platts12 has announced that 0.5% sulphur fuel oil8 indices will be published during
2019.
23. Can the extra cost brought about by this regulation be absorbed by CMA CGM
without being passed on to the customer?
No. With fuel prices 1.5 to 2 times higher, or with large investments to be financed
(scrubbers9 and LNG10), it will be impossible for CMA CGM to absorb the extra cost
brought about by the entry into force of this regulation.
It will be the same for the whole of the shipping industry.
24. If CMA CGM opts for installing Scrubbers9 on its vessels, can it not avoid passing on
to its customers increases in BAF13 or freight rates?
No. Because of the size of the investments to be financed and the fact that it is
impossible to install scrubbers9 on all the vessels, for technical or economic reasons
(60% of the vessels operated by the Group are chartered), it will be necessary to pass
on the extra cost under this regulation to customers, by increasing the Bunker
Adjustment Factor (BAF)13 or freight rates.
25. How will CMA CGM pass on the extra cost brought about by this regulation to its
customers?
• Either by higher all-in freight rates,
• Or by a specific bunker surcharge,
• Or by an increase in the current BAF13.
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26. Does CMA CGM envisage proposing alternative solutions to enable its customers to
avoid all or part of these cost increases, for example: reduction in speeds =
reduction in consumption = increase in transit times?
Probably not. Unless all the actors involved in a trade accept longer transit times, it
seems unlikely that this solution could be envisaged. Taking the example of a round
trip increased by one week, the saving achieved on consumption would not be
sufficient to offset the increase in fuel prices and the cost of the additional vessel
required to maintain a weekly service frequency.
27. Will there be a particular impact on reefer containers?
Yes. The electricity used on board vessels to maintain the operation of reefer
containers is generated by the auxiliary engines.
Like the main engine, the auxiliary engines will have to consume low-sulphur fuels,
fuel oil8 or LNG10, conforming to the new regulation, or have scrubbers9 to treat the
exhaust gases.
Consequently, reefers surcharges will have to be increased.
28. How can a CMA CGM customer convert their freight surcharge into a “green”
marketing value?
As the whole shipping industry has to come into line with a regulation which has a
significant impact on public health, shipping companies’ customers in turn can
present a message on this positive point.
29. Can CMA CGM offer a customer a multi-year fixed contract which goes beyond 1st
January 2020?
No. CMA CGM is not in a position, at least in 2018, to propose a multi-year contract
going beyond 1st January 2020, unless the contract specifically includes a clause on
revising the parameters and structure of calculation of the bunker surcharge (BAF)13.
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GLOSSARY
(1) International Maritime Organization (IMO): United Nations institution specialising in maritime issues. Its headquarters are in London. Its main missions are:
• Collaboration between the Member States in the field of maritime regulations.
• The adoption of safety standards: SOLAS convention for the protection of human life at sea, ISPS (International Ship and Port Facility) code, etc.
• Preventing pollution of the marine environment (MEPC) by vessels and port installations: MARPOL convention.
(2) Annex VI to the MARPOL convention: (MARine POLlution) concerns the prevention
of air pollution by merchant vessels. Adopted in 1997, it came into force on 19 May
2005. Among other things, this new annex contains obligations concerning emission
levels of sulphur oxides SOx, nitrogen oxides NOx and Volatile Organic Compounds
VOC at sea and/or in ports, the sulphur content of marine fuels, and restrictions
concerning incineration on board vessels.
(3) Emission Control Area (ECA = Emission Control Area or SECA = Sulphur Emission Control Area) these are maritime zones in which strict controls on merchant vessels have been established by the IMO to minimise emissions of sulphur oxides (SOx) and nitrogen oxides (NOx) and to prohibit all deliberate emission of substances that deplete the ozone layer. Since 2011 there have been four ECAs around the world:
• Baltic Sea and North Sea for sulphur emissions;
• North America and the maritime Caribbean zone of the United States for sulphur oxide and nitrogen oxide emissions and particulates.
Since 1 January 2015, the sulphur content of fuels authorised for use on merchant vessels in the ECAs has been reduced to 0.1% from the previous level of 1%.
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(4) SOx, sulphur oxides: Sulphur oxides are different types of components containing sulphur and oxygen, the most stable being sulphur dioxide SO2 and sulphur trioxide SO3.
SO2 is a colourless toxic gas. An atmospheric concentration of over 5 ppm becomes dangerous to humans, but for certain plant species it is harmful from 1 or 2 ppm (ppm = parts per million, i.e. in mass 1 milligram per kilogram).
SO2 is an undesirable by-product of the combustion of oil or coal, for example. This element easily combines with water (H20) to form sulphuric acid.
(5) NOx, nitrogen oxides: Nitrogen oxides are different types of compounds containing
nitrogen and oxygen. Among the nitrogen oxides, the main atmospheric
pollutants are nitrogen monoxide NO and nitrogen dioxide NO2; these are the ones
which are analysed by air quality monitoring networks and which, combined with
volatile organic compounds, are the cause of “summer smog”.
Nitrogen oxides have direct toxic effects on public health (respiratory disorders), and
indirect environmental effects by contributing to the increase in the greenhouse
effect.
(6) GHG, greenhouse gases: are gaseous components which absorb the infrared
radiation emitted by the earth's surface and contribute to the greenhouse effect. The
increase in their concentration in the earth's atmosphere is one of
the factors causing global warming.
Water vapour (clouds), methane CH4, carbon dioxide CO2 and nitrogen protoxide are
the main greenhouse gases, which contribute to trapping the solar energy that is
normally reflected, increasing the average temperature of the earth.
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(7) Refining: Oil refining means all the treatments and processing aimed at extracting
from crude oils the different fractions that are directly marketable or usable as
intermediate products in refineries. Basically, there are:
• So-called “light” products (or fractions): gas (liquefied petroleum gas GPL), light gasolines and naphtha’s, heavy gasolines and gasoil, jet fuels, domestic heating oils,
• So-called “heavy” products (or fractions): Residual fuel oils and bitumen.
(8) Heavy fuel oils (refinery residual fuel oils): Heavy fuel oils obtained from heavy
refining fractions are used as fuels by the large engines installed on vessels or to
power thermal power plants.
These residual products contain impurities which, to a greater or lesser extent, are
detrimental to correct engine operation; moreover their high viscosity makes
injection at ambient temperature impossible and requires a succession of treatments
before use (reheating, decanting, centrifugation, filtration, etc.).
The main advantage of this type of fuel is its price; nearly half the price of gasoil (light
product) for virtually the same amount of energy yield.
(9) Scrubber (or EGCS Exhaust Gas Cleaning System): A scrubber is a piece of equipment for industrial application. This term embraces several air pollution control systems, used to eliminate certain particulates from industrial exhaust gases, most often with the help of a liquid.
It is the contact between the gas and the liquid which allows the polluted gas to be washed. It may also comprise systems which inject a dry reagent or reagent in suspension in a dirty exhaust flow to purify acid gases, or instruments for recovering heat by condensing combustion gases, etc. This decontamination equipment can take the form of a hollow scrubbing tower.
(10) Liquefied Natural Gas: (LNG) is natural gas condensed to the liquid state. It
basically consists of methane CH4, but can also contain up to 10% ethane C2H6 and
small quantities of other compounds.
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Natural gas becomes liquid at a temperature of -163/-161°C at atmospheric pressure,
and its density of 0.45 makes LNG about twice as bulky as fuel oil or gasoil for the
equivalent quantity of energy.
It is mainly used as a means of transporting natural gas from producing countries to
consuming countries, by sea. It is also used as a fuel for vessels or land vehicles, and
as a solution for conveying natural gas to sites not connected to the network.
LNG should not be confused with Liquefied Petroleum Gas LPG, which consists mainly
of propane and butane, which are the lightest fractions obtained after refining crude
oil.
(11) “HAZID” and “HAZOP” studies: HAZard IDentification HAZID and HAZard and
OPerability HAZOP, are measures for identifying all types of standard risks (fire,
collision, falling object, collapse of structure, etc.) and verification of risk control. This
method mainly aims to identify the consequences of fault scenarios and the
resources implemented to control the risks incurred.
(12) PLATTS indices: These are price indices for reference oil products (crude and
derivatives) calculated and published by PLATTS on the basis of public data and
figures which key buyers and sellers of these oil products supply via secure internet
networks.
These indices exist for all types of oil products, crudes, intermediate products and
finished products, and for all geographical areas in which a wholesale and/or retail
market exists and is sufficiently active to be representative.
(13) Bunker Adjustment Factor (BAF): In the field of maritime transport pricing, the BAF
is an economic adjustment factor which influences the transport price. The BAF
modifies the transport cost in accordance with the rate per barrel of oil (main energy
source for transport). It may be expressed as a percentage or as an amount to be paid
per container.