The Economic Case

Many ship operators who are now having to comply with existing and up-coming emissions and fuel legislation, are having to evaluate what are the full range of options for compliance. In the current Baltic SECA (Sulphur Emission Controlled Area) operators currently have two options: either buy 1.5% sulphur fuel, or continue to use high sulphur residual fuel and fit abatement technology to achieve the same level (1.5%) or better.

The considerations to therefore be taken into account would be:

1. how often is my vessel in the controlled area,
2. what is the current and future price difference (future diffs as quoted in forward curves offered by oil companies and Banks) between HSFO and LSFO
3. If I invest in scrubbers, what is the payback period ? ( and will it fit my Board investment criteria of 3 years or less?)
4. What is my view on where future price differences will be for both distillates and LSFO over HSFO?
5. With more legislation around the corner, do I start future-proofing my vessels now so that I am not faced with a hasty compliance need when legislation is effected later?

At the moment, both IMO and the EU have effected sulphur emission legislation which can be handled by using lower sulphur fuel, or fitting scrubbers. It is being widely anticipated that future legislation from as near as 2010, will undoubtedly try to tackle both PM and NOx emissions. Compliance for these emissions may be achievable by using lower sulphur fuel ( incl distillates ) but it may also not be. The current Californian Auxiliary engine rule enforced from 1st January 2007 is already causing conjecture on whether using distillates will actually meet compliance for all three of the emissions detailed in the ruling (Six, NOx and PM).

Certainly the Californians have cited the fact that premature death and high levels of asthma in coastal areas is directly attributable to PM emissions from ships. PM emission reduction has therefore become very high profile in the USA and will likely be pressed by the US at IMO to be covered by the next round of legislation.

One thing that operators can be sure of is that, in the event of legislation moving towards distillate type goal-based solutions, scrubbers will provide the best low cost alternative to the compulsory use of higher grade fuel. In most instances, payback for scrubbers versus a distillate alternative, is less than 6  months !!  The current differential from HSFO to distillate is around $350/tn, which for most operators would mean $millions of additional fuel cost if this was their only alternative.

For a new build application, most operators are already at the stage of believing that fitting scrubbers is already cost effective. The additional cost of the installation for a retrofit application can make the decision border-line versus the current alternative of buying lower sulphur fuels. However, this can vary dramatically on the fuel usage and utilisation of the vessel - so we would recommend giving us the details of what fuel usage is on any vessels you consider to possibly be applicable for scrubbing along with the amount of time it will spend in a controlled area.

One thing Krystallon would recommend that operators look at, is how they are going to handle the elimination of PM once this becomes controlled by legislation. As stated above, we believe that this will almost certainly become part of future IMO and EU legislation. The Californians have already given us a flavour of what is around the corner for anyone currently not operating in Californian waters.

We cannot emphasise enough that if a distillate or distillate-type goal-based solution is put forward by IMO or other legislative bodies, then scrubbing will be a far cheaper option - as versus distillate, scrubbing enables the use of high sulphur residual fuel and gives a much cleaner emissions signature. Scrubbing versus distillate is much much cheaper and more importantly, is much better for global health.