World tanker Trade and Fuel Cargo Demand 2030
The marine world in 2030 will be almost unrecognizable owing to the rise of emerging countries, new consumer classes and resource demand. In qualitative terms, the shape of the marine world in 2030 will depend on tri-polar interactions between people, economies and natural resources.
Demographics and Energy Demand
Population growth and increases in income per person are the key drivers behind growing demand for energy. By 2030, the world’s population is projected to reach 8 billion, with 96% of growth coming from developing countries. India will overtake China with the largest population and the largest labour force in the world. Mexico will replace Japan in the top 10.
Over the same period, GDP is expected to more than double, with non-OECD Asia contributing nearly 60% of that growth. China and India are key drivers of non-OECD growth and are projected to grow by 5.5% per annum (p.a.) between 2013 and 2035.
As China’s level of productivity catches up with the OECD, its rate of growth is expected to slow from 7% p.a. in this decade to 4% p.a. in the in the decade to 2035. India’s growth moderation is more gradual: slowing from 6% p.a. in this decade to 5% p.a. in the final decade.
Primary energy consumption increases by 37% between 2013 and 2035, with growth averaging 1.4% p.a.. Virtually all (96%) of the projected growth is in the non-OECD, with energy consumption growing at 2.2% p.a.. OECD energy consumption, by contrast, grows at just 0.1% p.a. over the whole period and is actually falling from 2030. This reflects the end of the phase of rapid growth in energy demand in developing Asia, centered on China, driven by industrialization and electrification.
As the population, economy and prosperity increase so will the demand for oil and gas. The world’s real GDP per capita is likely to rise more than 100% over the next 20 years – more people with more income indicate that demand for resources will rise. The top per capita GDP ranks will still be filled with highly urbanised developed nations. However, the largest percentage growth in per capita GDP will take place in the medium or low-income countries, particularly China, India, Vietnam and Indonesia. The increased income will boost their appetite for food, energy, infrastructures and all sorts of consumer goods, expanding demands for trade and shipping activities.
- Marine Fuel Consumption
The fuel demand will more or less double by 2030. This is mainly due to the increase in transport demand (and subsequently energy demand) requirements and shows that relative to this underlying growth in demand, reductions in energy demand due to energy efficiency improvements and speed reductions, are small. Individually, demand for HFO will increase until 2025. Although demand for other alternatives will generally increase, it is interesting to see that even in the most extreme case single alternative fuel will reach 50% of the total demand compared to 2010 levels.
- Oil Consumption
China will overtake North America to become the largest oil consumer by 2030, nearly triple the level of 2011 and moving from about half of North America in 2011 to 35% more than North America in 2030.
- Natural Gas consumption
USA will remain the biggest natural gas consumer in 2030, while China will see the largest growth in natural gas consumption in the next two decades. Russia’s energy consumption continues to be dominated by natural gas over the next 20 years. Natural gas consumption in the Middle East and Europe will overtake oil consumption by 2030.
- Coal consumption
China and India will be the two giants in the world’s coal consumption. Around 60% of coal consumption will come from China in 2030. Coal will continue to dominate India’s energy outlook in the next 20 years. As India’s economy modernizes, India’s coal consumption will more than double between 2010 and 2030, surpassing the USA’s consumption and making her the second largest coal consumer in 2030.
- Steel consumption
Due to its special combination of strength and formability, steel plays an important part in building modern infrastructure. As the main raw material of producing steel is iron ore, iron ore is also an important seaborne cargo shipped around the world. Because of the massive demand in the construction sector, India will see the largest growth in steel consumption. China’s steel consumption growth will slow down, but she will still remain the biggest steel consumer in 2030.
Tanker Trade Routes
Crude Oil: The largest increase in seaborne oil trade will come from the Arabian Gulf, Black Sea, and Latin America to China and other Asia. The rise will be caused by increased transport demand in these emerging regions. North America and Japan will reduce seaborne oil imports over the next 20 years, benefiting from fuel efficiency gains, alternative energy supplies such as light tight oil and new transport technologies (e.g. electric cars). There will be a change in crude oil suppliers to North America, away from the Middle East and towards Latin America.
The majority of Russia’s oil exports will still go to Europe in 2030, but there will be a trend to diversify its export to Asia, with a particularly significant increase to China.
Product Oil: In the next 20 years, there will be a large increase in product oil import in Southeast Asia. As a whole, Southeast Asia and Europe will be the major importers in 2030. Similar to today, the product oil export will be dominated by Europe and CIS. There will also be a relatively large growth in CIS.
Crude Oil/ Product Oil demand and considerations
The crude oil’s reserves-to-production ratio of the world is reported to be about 55 years. It is suggested that there should be sufficient oil to match the demand after 20 years. Globally, crude oil production is expected to increase to meet the growth in consumption. The world’s crude oil supply is set to rise between 38-63% by 2030.
The largest growth in crude oil production will still come from the Middle East. The recent oil bonanza in Latin America (Brazil) and North America (Canada and USA) will also give the two regions a competitive edge. North America’s robust growth is mainly from its unconventional oil resources. Russia’s current core oil fields in Western Siberia will decline. Nevertheless higher-cost fields in Western Siberia, Eastern Siberia and the Arctic could be expected to take up the slack. Uncertainties in oil production may lie in Africa. Africa’s oil production growth could face challenges in its civil conflicts, the lack of infrastructure, and it’s poor quality of schooling.
Crude oil may be one of the most important seaborne cargos, accounting for about a quarter of goods shipped by sea. Middle East/Arabian Gulf will still dominate the crude oil export in 2030. China and South Asia will significantly increase their crude oil imports by 2030. They will join Western Europe as dominant importers. North American and Japanese imports will decline gradually over time.
Figure: Major crude exports by destination, 2011–2035 (Source: WOO 2012)
Product Oil: As today, the largest product oil trade will take place within the European and Mediterranean regions in 2030. There will be a large increase in product oil import in Southeast Asia. As a whole, Southeast Asia and Europe will be the major importers in 2030. Similar to today, the product oil export will be dominated by Europe and CIS. There will also be a relatively large growth in CIS.
LNG Trade demand and considerations
The estimated proven reserves-to-production ratio of natural gas is about 60-65 years. With recent development in horizontal drilling and hydraulic fracturing (fracking) that unlocks shale gas reserves and other new discoveries, some research estimates the technical recoverable resources-to-production ratio could reach more than 230 years at current level. But there are concerns in the gas development. The cost of accessing all the gas bounty is unknown. Safety and environmental issues raised from implementing new technologies could restrain the shale gas production growth. If these barriers are surmountable, the global energy market could enter an era of gas.
CIS (mostly Russia) and USA remain the major natural gas producers in 2030. Similar to oil, Russia’s natural gas production will gradually shift from Western Siberia to Eastern Siberia and the Arctic. USA’s main natural gas production growth will come from shale gas fields. The Middle East’s natural gas production could be constrained by the lack of export infrastructure, technical and economical challenges in the production field as well as domestic policy.
The largest increase in LNG import will come from the energy-hungry India and China between 2010 and 2030. The natural gas import will be dominated by Japan, Europe, India and China in 2030.
LNG export will be dominated by Australia and Qatar in 2030. Qatar is the biggest LNG exporter today. But thanks to Australia’s several LNG export projects under development, Australia is tipped to surpass Qatar by 2020. The largest export increases will take place in Australia and Nigeria. East Africa, in particular Mozambique, could be a new hotspot in LNG exports due to its recent large offshore discoveries.
Energy Regulatory Environment
Current Regulatory framework
An increased focus on both global and local environmental issues in general, combined with the growing realization of the actual pollution burden imposed by shipping, has led to an upsurge in both international and national regulations. Some are ready for implementation and will enter into force in the near future, while others are still being developed and will have an impact only in the intermediate term. The key issues having a significant regulatory impact this decade are, broadly speaking, SOx, NOx, particles and greenhouse gases (in particular CO2).
ISM SEEMP MARPOL ISO 14001/50001
CO2, SOx, NOx and PM are all emissions to air that result from the combustion of marine fuels. These emissions have potentially severe eco-system impacts and negative health effects on exposed populations. These impacts have, in some parts of the world, led to strict regulation of emissions from land-based sources. In recognition of shipping becoming a dominant emission source, potentially exceeding land-based sources, emissions have been internationally regulated by the IMO.
Mandatory measures to reduce greenhouse gas (GHG) emissions from international shipping were adopted by IMO in July 2011, representing the first ever mandatory global GHG reduction regime for an international industry sector. The adoption of mandatory reduction measures for all ships from 2013 and onwards will lead to significant emission reductions as a result of reductions in fuel consumption, and also a significant consequent cost saving for the shipping industry. By 2020, up to 200 million tons of annual CO2 reductions are estimated from the introduction of the Energy Efficiency Design Index (EEDI) for new ships and the Ship Energy Efficiency Management Plan (SEEMP) for all ships in operation, a figure that, by 2030, will increase to 420 million tons in accordance with a study commissioned by the IMO Secretariat.
Further to the above, implementing an Environmental Management System (EMS) in accordance with ISO 14001:2004 standard and an Energy Management System (EnMS) in accordance with ISO 50001:2011 standard, aids in continually increasing energy efficiency and minimizing energy waste.
Upcoming Maritime Environmental Regulations
MARPOL Annex VI states a combination of general maximum global emission levels and more stringent levels applying to designated sea areas generally known as Emission Control Areas (ECAs). The regulations allow emissions to be mitigated by either changing the fuel specification/type or by exhaust gas cleaning. By 2015, operators will have to choose between installing exhaust gas cleaning systems known as scrubbers or switching to low sulphur fuel for all ships operating in an ECA. In 2020 or 2025, pending an IMO decision in 2018, the 0.5% sulphur global cap will enter into force. A complicating factor in these decisions is the fact that there are local and regional regulatory initiatives in addition to the international IMO requirements. One key example is the EU, where the most likely outcome of an ongoing revision of legislation is the implementation of a 0.5% sulphur limit in all EU waters, beginning in 2020. These developments may significantly affect operator considerations.
The MRV Regulation will apply to shipping activities carried out from 1 January 2018 in relation to EU ports.
The EU system for monitoring, reporting and verifying shipping emissions is designed to contribute to building an international system. First steps in this direction have already been taken at the IMO, with active support from the EU and partner countries. By yielding further insights into the sector’s potential to reduce emissions, the EU- shipping MRV system will also provide new opportunities to agree on efficiency standards for existing ships.
The MRV Regulation creates an EU-wide legal framework for collecting and publishing verified annual data on CO2 emissions and energy-efficiency related information from all large ships (over 5,000 gross tons) that use EU ports, irrespective of where the ships are registered. From January 2018 onwards, companies will have to monitor and report the verified amount of CO2 emitted by their large ships on voyages to, from and between EU ports. Companies are also required to provide certain other aggregated annual information, such as data to determine the ships’ energy efficiency.
A valid document of compliance issued by an independent verifier has to be carried on board of ships having performed shipping activities falling under the shipping MRV Regulation during the previous year when visiting EU ports and might be subject to inspection by Member States’ authorities.
The MRV regulation refers to energy efficiency as part of the monitoring and reporting requirements, including ‘transport efficiency’ and ‘average energy efficiency’. These are defined within the Annex II to the regulation and have similarities to the methodology for calculating the IMO’s Energy Efficiency Operational Indicator (EEOI). Through discussion with the EC, however Annex II is intended as a placeholder and a preference is for globally agreed energy efficiency measure(s).
The MRV system is expected to cut CO2 emissions from the journeys covered by up to 2% compared with a ‘business as usual’ situation, according to the Commission’s impact assessment. The system would also reduce net costs to owners by up to €1.2 billion per year in 2030.
In addition it will provide useful insights into the performance of individual ships, their associated operational costs and potential resale value. This will benefit ship owners, who will be better equipped to take decisions on major investments and to obtain the corresponding finance.
Source: European Commission
Aside from the MARPOL amendments, it has also been recognized by governments represented in IMO that technical and operational measures would not be, in the longer term, sufficient to meet the overall reduction objectives indicated by scientific research – particularly in view of the growth projections for world trade and, as a consequence, of shipping. IMO has, therefore, concluded that a Market-Based Measure (MBM) is also needed, as part of a comprehensive package of measures for the effective regulation of GHG emissions from international shipping.
An MBM would place a price on GHG emissions from international maritime transport. An MBM could thereby serve two main purposes: being an incentive for the industry to invest in more fuel efficient ships and to operate them more energy efficiently, and off-setting (in other sectors) of growing ship emissions. In addition, MBMs could generate considerable funds that could be used for mitigation and adaptation actions in developing countries.
Conventional and Alternative Fuels
The global merchant fleet currently consumes approximately 330 million tons of fuel annually,
80-85% of which is residual fuel with high sulphur content, and the remaining are distillate fuels complying with stricter regulations. Upcoming regulations regarding the sulphur content of marine fuels, both in emission control areas and globally, are likely to create increased demand for low-sulphur fuels for shipping in the next five to ten years. The advent of new regulations in the next decade can lead to significantly increased fuel prices for distillate fuels, while refinery capacity for producing distillates can turn out to be insufficient for meeting the vastly increasing demand. In addition, climate change concerns will put increasingly more pressure on shipping for reducing its greenhouse gas (GHG) emissions. Both the demand for low sulphur fuels, as well as the need for reduced GHG emissions can be addressed by the introduction of alternative, low carbon fuels.
Alternative fuels have been used in the transportation sector in the past. There is a long list of fuels or energy carriers that can be used in shipping. The ones most commonly considered today are Liquefied Natural Gas (LNG), Electricity, Biodiesel, and Methanol. Other fuels that could play a role in the future are Liquefied Petroleum Gas (LPG), Ethanol, Dimethyl Ether (DME), Biogas, Synthetic Fuels, Hydrogen (particularly for use in fuel cells), and Nuclear fuel. All these fuels are virtually sulphur free, and can be used for compliance with sulphur content regulations. They can be used either in combination with conventional, oil-based marine fuels, thus covering only part of a vessel’s energy demand, or to completely replace conventional fuels. The type of alternative fuel selected and the proportion of conventional fuel substituted will have a direct impact on the vessel’s emissions, including GHG, NOx, and SOx.
Marine Gas Oil
Marine gas Oil (MGO) with 0.1% sulphur or less is readily available and shares more or less the same properties as the diesel fuel used for high-speed diesel engines. MGO results in low sulphur emissions, meeting the MARPOL Annex VI demands. MGO does not require any extra volume for storage tanks, and adjusting the engine to MGO requires in most cases only small investment costs. However, MGO fuel prices are higher than those of other heavy fuel oils due to its production process.
In the past few years, LNG has become a more popular fuel for shipping. This development has much to do with the development of a distribution network and of the transport and availability of gas in LNG form in general. LNG availability differs from country to country and although the number of ships using LNG has been increasing, LNG engines are not yet commonly used on commercial vessels. LNG has to be stored in cryogenic tanks which require much more space than traditional fuel oil tanks. This may reduce the cargo capacity, depending on the type of vessel and the potential to have an adequate and safe location for the LNG tanks on board. LNG is assumed to be available at a competitive cost, but the future price level is highly uncertain.
Why use LNG as fuel for ships?
LNG offers huge advantages, especially for ships in the light of ever-tightening emission regulations. Conventional oil-based fuels will remain the main fuel option for most vessels in the near future, and, at the same time, the commercial opportunities of LNG are interesting for many projects. While different technologies can be used to comply with air emission limits, LNG technology is the only option that can meet existing and upcoming requirements for the main types of emissions (SOx, NOx, PM, CO2). LNG can be competitive pricewise with distillate fuels and, unlike other solutions, in many cases does not require the installation of additional process technology.
Fuel Costs projections
Fuel cost is the largest cost element for virtually every shipping company today. The regulatory shift towards low sulphur fuel is one of the developments in the industry that will have the largest impact in terms of shipping costs and operations, and may have a strong impact on the ‘uptake’ of new technologies. The viability of many emission reduction technologies depends heavily on various fuel prices and their relative differences. This factor, added to the overall importance of fuel prices for the profitability of the maritime industry, makes monitoring of the fuel markets and keeping track of their developments of significant importance.
Developments in the maritime fuel industry have become crucial for operators and cargo owners as fuel consumption accounts for a large share of the total voyage costs and can constitute a significant portion of the total transportation costs. For the shipping industry, it is not surprising then that fuel costs, and consequently oil prices, are among the main drivers of the implementation of new technology.
Increased environmental focus in today’s market and the simultaneous need for the shipping industry to become more accountable for its environmental footprint are influencing the decisions that shipping has to make in terms of fuel type selection. The growing scarcity and high price of oil will favor the use of renewable fuels. The IMO’s aim is to reduce emissions to air from ships, and ship owners must comply in one way or the other. The section on environmental regulations explains these principles in more detail. It should be noted that large price differentials in bunker fuels, and even more so with LNG, can be observed among different countries’ fuel markets.
To a very great extent, the variation in fuel oil prices is correlated to the movement of oil prices. If we compare the projections in the ﬁgure below with current prices, we see that the forecasted price is consistent with current levels that have been sustained since late 2009. However, it is observed that the price ranges between $400 per ton and $1,550 per ton ($10.6 to 41.4 per MMBtu). Prices have been as low as $170 per ton ($4.5/MMBtu) as recently as March 2009, with an average that month of $350 per ton ($9.35/MMBtu). Although it appears that, in the short term, prices are above even the high trend forecasts, it should be noted that these indicate trends and should not be taken as precise predictors of the price during a specific month or year.
MGO prices will range between approximately $500 per ton ($12/MMBtu) and $1,500 per ton ($37/MMBtu) in 2015, and over $2,000 per ton by 2035. A reference case for MGO (Report Shipping 2020, DNV) shows an increase in real terms in the price from $1,100 per ton in 2015 to approximately $1,200 per ton ($29.5/MMBtu) by 2030.
|Figure: HFO price projections 2010-2035
|Figure: MGO price projections 2010-2035
Like gas prices, LNG prices vary greatly from country to country. Based on the EIA and IEA projections the expected range in the price of LNG, which is likely to rise from the range of $300-800 per ton ($7 to 17/MMBtu) in 2010 to the range of $400-1200 per ton ($9 to 26/MMBtu) in 2035. The LNG price for marine use is likely to be on the high end of future price projections.
Figure: LNG price projections 2010-2035 (real terms).
Energy Efficiency Technology
Emissions Projections to 2030
Global CO2 emissions from energy consumption continue growing through 2030, driven by strong growth in non-OECD energy consumption. The growth of global CO2 emissions from energy averages 1.2% p.a. over the next twenty years (compared to 1.9% p.a. 1990–2010), leaving emissions in 2030 27% higher than today. CO2 emissions from oil consumption rise by about 14%, with all of the increase coming from non-OECD countries; OECD emissions from oil consumption decline in both the reference and policy cases. With oil losing market share to other fuels, oil’s share of global CO2 emissions falls from about 37% currently to about 33% by 2030. Under a more aggressive climate policy case, global CO2 emissions from energy consumption—and for oil—begin to decline, though the level of CO2 emissions from energy use by 2030 remain above 2010 levels. Clearly the trajectory of energy consumption and CO2 emissions will depend on the outlook for economic growth. Also clearly, the robust availability of global proved reserves of oil and other fossil fuels means that growth of CO2 emissions is unlikely to be constrained by resource availability over the next 20 years (although, above-ground considerations will signiﬁcantly impact the development of future production capacity).
SOx Reduction Technologies
The revised Annex VI to MARPOL 2008 regulates the SOx emissions from ships, mainly by setting a limit for the sulphur content of marine fuel oils. Within specified ECAs, the sulphur limit will be even stricter than MARPOL Annex VI. Based on a review of existing marine engine technology and expected technology developments, ship owners currently mainly have two choices if they wish to continue sailing in ECAs after 2015: install an exhaust gas scrubber or switch to low sulphur fuel including LNG.
An exhaust gas scrubber can be installed to remove sulphur from the engine exhaust gas using seawater or freshwater and/or chemicals which are pumped through the scrubber. Dry scrubbers are also available, where hot exhaust gas is fed through a packed-bed absorber filled with lime in the form of granulate pellets which reacts with the SOx and produces gypsum, a soft sulphate mineral. The scrubber allows the ship to use cheaper, readily available high sulphur fuel. Besides removing nearly all sulphur from the exhaust, a scrubber also removes a large part of soot and particulate matter. However, the system takes up space, is a significant investment cost and requires additional energy to run. The technology has a rather limited track record aboard ships.
Scrubbers are generally bulky and require alterations on board, such as additional tanks, pipes, pumps and a wash water treatment system. The sulphur is released overboard with the discharge wash water, and in open waters this is generally appreciated to be unproblematic from an environmental point of view. The sludge produced is categorized as special waste, to be disposed of at dedicated shore facilities. Scrubbers increase the power consumption by some percent, thereby increasing the total CO2 emissions. Scrubbers can be retrofitted to ensure ECA compliance for existing ships, although there is still some uncertainty about the consequences of scaling up such installations for large diesel engines.
Low sulphur fuel options will realistically be either expensive distillates or LNG, the latter in practical terms being an option mostly for newbuildings. For newbuildings from 2016 onwards and operating in an ECA, the NOx requirements add another layer of complexity due to possible technical incompatibility between SOx and NOx solutions.
NOx Reduction Technologies
NOx emissions are regulated through the revised MARPOL Annex VI 2008, which puts a limit to the specific emission from marine engines as a function of the revolutions per minute (rpm). The regulation applies only to newbuildings and is divided into three tiers based on the date of construction and on the operational area. Vessels with keel-laying dates after January 1, 2011 need to comply with Tier II requirements; these can easily be met by engine tuning by manufacturers. After January 1, 2016, newbuildings intended for operation in ECAs will have to meet Tier III requirements, which will require more drastic action. Feasible solutions include:
- Exhaust gas Recirculation (EGR)
- Selective Catalytic Reactors (SCR)
- Water Injection – Humid Air Motors (HAM)/Water in Fuel (WIF)
Exhaust gas recirculation (EGR), which is based on feeding exhaust gas into the combustion process, is regarded as a quite promising method, and engine makers currently have a strong focus on developing their EGR systems to ensure compliance with the strict Tier III requirements. The basic concept of the technology is that the higher heat capacity and lower oxygen content of the re-circulated exhaust gas lower the peak combustion temperature significantly, which suppresses the formation of thermal NOx. EGR has few operational references, but the technology is expected to be commercially available as an alternative in the near future.
Selective Catalytic reactors (SCR) have already been installed on a number of ships and have proven to achieve significant emission reductions. Certain issues have to be resolved, however, such as minimum exhaust gas temperature requirements to achieve the optimum effect and continuous operation of the catalyst. In addition, sulphur in the fuel has a tendency to pollute the catalyst material, so the SCR should ideally be installed after a SOx-reducing step, unless fuel with low sulphur content is used. SCR is a proven technology and has been used in land-based power plants since the late 1970s, while the first marine application was introduced in the late 1980s. That said, the marine SCR system still needs to be matured, for daily and continuous marine operation using different fuel types and for compatibility with all engine types. Typical reduction levels of NOx are in the range of 50-95%, depending on the amount of urea (reducing agent) used, given that there is sufficiently high exhaust gas temperature to drive the process. Achieving sufficient exhaust gas temperature is a challenge for the operation of SCR systems at low engine loads and for two-stroke engines.
Water Injection (HAM/WIF) is an approach in which water is added through saturation of the scavenge air, as direct water injection or as emulsified water in the fuel. This is an effective way of reducing NOx emissions, although there is some concern that it may affect the engine’s thermal efficiency and cause fuel consumption to increase. The amount of NOx removed will depend on the amount of water injected: while emission reductions of up to 50% have been observed, emissions have typically been reduced by less than 30 percent.
LNG. The technical challenges related to LNG as fuel have mainly centered on a few issues including: LNG handling and bunkering; and containment systems on board. Due to the very low temperature at which LNG must be transported, specialized alloys have been installed together with “traditional” tanks, pipes and machinery systems. Technical solutions continue to be researched and developed to permit further use of LNG as a marine fuel. Vessels have previously been covered by the IMO interim guidelines for LNG as ship fuel (MSC-285(86)) and related class rules. This guideline gives the flag administrations the possibility to issue the necessary SOLAS certificates. This guideline has been replaced by the more general IGF-Code. Technical challenges notwithstanding, the environmental benefits are significant. Use of LNG as fuel will reduce the NOx emissions by approximately 90% on a lean burn gas fuelled engine, and the SOx and particulate matters emissions are eliminated. The CO2 emissions are about 20% lower because of the lower carbon content of LNG. However, the release of unburned methane from engines (methane slip) is a challenge, especially for 4-stroke dual fuel engines, as the greenhouse gas effect of methane is between 20 and 25 times higher than for CO2. Regardless of a price premium of 15-20% compared to conventional engines, LNG fuel will become more relevant in the coming years for reasons related to both economies of scale and estimated lower fuel consumption.
CO2 Reduction Technologies
The first formal CO2 regulations were adopted by IMO in 2011. By setting increasingly stringent energy efficiency requirements for new ships, the EEDI is intended to stimulate the development of more energy efficient ship designs, thereby indirectly leading to reduced operational CO2/GHG emissions. The SEEMP, on the other hand, is designed to directly stimulate more energy efficient operational practices.
Energy efficiency measures are different from other emission abatement technologies as they fulfill two purposes: they reduce fuel consumption and not emission directly, and they are (potentially) cost effective. The expected higher energy prices and corresponding fuel prices will increase the focus on development of more energy-efficient systems for ships. Ships built today may in the future compete with more efficient ships. The creation of various voluntary rating schemes for environmental performance, including CO2 performance, is providing tools that allow charterers and cargo owners to use only ships that satisfy their new and stringent requirements.
Further, several technological measures will be increasingly used in the coming years. The options can be categorized into four groups, as shown below, although there are many different measures available for implementation in each category.
- Reduction in ship resistance
- Increase in propulsive efficiency
- Increase in power production efficiency
- Reduction in auxiliary consumption
Shipbuilding Market size and evolution
The total deliveries will remain at the current level in 2030. China and emerging countries will determine the ship newbuilding market landscape after 20 years. Japan and South Korea, however, will lose their market share. South Korea‘s market share will fall from 34% (in 2010) to around 22% (in 2030). Japan’s share will fall from 21% to 9-10%.
The total deliveries from the emerging countries will increase. Vietnam, Brazil, India, and Philippines will be the potential leaders. Brazil and India will see the largest percentage increase, while Vietnam will gain the largest volume. However, their individual deliveries will remain significantly smaller than those from China or South Korea in 2030.
Tanker is the only ship type that we anticipate a decreasing delivery for the next 20 years. Newbuildings will be dominated by China (44-55%), South Korea (25-27%), and emerging countries (8-20%) in 2030. There will be a large increase in China and emerging nations’ tanker deliveries.
Total LNG Carrier deliveries will rise by 2030. South Korea will gradually lose her total dominance in LNG carrier newbuildings by 2030. China’s market share (41-51%) in LNG newbuildings will be on par with South Korea’s (43-53%) by 2030. The Chinese government’s stronger interest to support the LNG carrier newbuildings will lead to a larger market share in the newbuilds in the Competing Nations scenario.
EEDI and Design vs. Operational Speeds
All else being equal, different fuel, machinery and technology combinations may result in a different ‘optimum’ speed. Variations in the specification of ship’s technical and operational parameters are observed between different ship sizes. Typically, higher fuel and carbon costs will drive lower speeds. However, in practice there is an interaction with the technical efficiency of the ship. In a given market, ships with better technical efficiency, expressed in terms of EEDI, can maximize their profit by operating at higher speeds than less efficient ships.
Differences between design and operational speeds can be explained due to the fact that the design speed is selected using the fuel price and market conditions specific to the time-step at which the ship enters the market, whereas the operational speed is updated as the fuel price and market conditions and technical specification (e.g. due to retrofit of energy efficiency technology) vary with time.
In all cases, newbuilding ships entering the fleet will comply with the relevant design efficiency requirements (EEDI) over time, for the given ship type and size. These are known today and become more onerous within a defined timeframe. The regulation only sets a minimum compliance requirement. However, fuel change (to lower carbon factor), design speed reductions or technology uptake may result in an EEDI lower than regulated, which also happens to be profitable at a given time-step. In this case, this is selected as the newbuilding ship’s specification. Consequently, in some cases, the EEDI trend of the newbuilding ships may increase over time, for example because the specific price, market and regulation backdrop in a later time-step finds a profit maximizing solution that remains compliant with the minimum EEDI regulation but results in a higher emissions intensity. This does not mean non-compliance (EEDI will still be at least equal to the regulatory level).
It should be emphasized that the EEDI parameter is just a means to look at the evolving technical specification of the fleet. The actual energy demands and emissions of the fleet are a function of operational parameters, and as operational speeds depart significantly from design speeds EEDI will become increasingly misrepresentative (this is often observed in the scenario results, with older less technologically advanced ships operating at lower speeds to remain competitive in an environment of higher fuel prices).
Size and machinery
Each of the main machinery and fuel combinations are selected by considering their profitability over time. The profitability changes over time because of the fuel price and carbon price evolution. There are also interesting differences between different ship sizes due to the different engine sizes (and costs) and the impact of fuel storage volume (e.g. hydrogen) on the ship’s payload capacity and therefore revenue.
For the smallest ship, MDO/MGO and 4-stroke diesel is initially more competitive but this is overtaken by LNG while the hydrogen-fuel cell combination competitiveness also increases.
On the larger ship, the conventional HFO and 2-stroke diesel combination remains the most profitable, with LNG overtaking MDO/MGO as the second most profitable option.
Larger vessels will benefit more from running on gas than smaller vessels due to economies of scale in installation and the sheer amount of fuel used by these ships. There are other drivers than the price of LNG for implementing gas fuelled engines, however.
When the global sulphur limit is enforced in 2020, this picture changes as ships would be required to run on low sulphur fuel or clean the exhaust continuously. This will have a significant impact on the implementation of gas fuelled engines, provided the capacity and fuel supply are there, and on scrubbers. Scrubbers may then potentially be fitted to thousands of ships if there is availability and capacity to deliver.
Propulsion efficiency devices and auxiliary system efficiency improvements will have a steady implementation rate on both new-buildings and existing ships.
The majority of large newbuildings will adopt hull optimization in some way. in order to meet the phase 1 EEDI requirement in 2015, some ships will opt for smaller engines and lower speed. Those who will use gas fuelled engines to achieve the 20% limit are less likely to de-rate their engine, especially in the scenarios where LNG is a cheaper fuel. To reach the 30% limit, which is not mandatory before 2025, de-rated gas fuelled engines with extensive hull optimization are a likely design combination option.
Pathways to low carbon shipping