Wilhelmsen Ships Service is highlighting the need for the international shipping industry to evaluate new propulsion fuels, driven by new regulations and emission controlled areas, amongst which LNG may be a viable addition.
The company used its annual Bunker Oil and Energy seminar, held two weeks ago and hosted by Wilhelmsen Premier Marine Fuels, to address these topics in front of shipping companies from all market segments.
Vice President Per Brinchmann from Wilh. Wilhelmsen ASA drafted a bleak picture for ship owners who were not already planning ahead for what is to come as he pointed out that in 2015, sulphur limits in the so-called ECAs (emission control areas), will be reduced to 0.1%. As it is technically almost impossible to produce heavy fuel oil with less than 0.1% sulphur ships will have to run on alternative fuels such as marine gasoil or LNG. Another option is to install scrubbers or other abatement technologies to reduce sulphur emissions. Whatever option is chosen, the result will be higher costs. Availability of compliant fuel worldwide could also be an issue.
One option, which is clean and quite inexpensive, is LNG (liquid natural gas). Aksel Skjervheim, head of fuel markets in GASNOR, a Norwegian provider, was optimistic on behalf of LNG. “LNG is commonly used in electricity production and is now accessible all over Europe for vessels who want to use this option as fuel”, he stated. Although LNG is still most commonly used on ferries and offshore vessels, global engine manufacturers like Wartsila, MAN, Rolls-Royce and Mitsubishi are all developing duel-fuel engines that can run on LNG. A major challenge however is the price of conversion for older engines, as well as the storage of LNG onboard. Due to higher volumes, LNG tanks need to be four times as large as normal fuel oil tanks. On a positive side, the use of LNG will also remove NOx, and incentives by governments, such as the Norwegian NOx tax will help the move to LNG.
Heavy fuel oil (HFO) is the predominant fuel for deep sea merchant vessels. With the introduction of ECAs, MGO demand from shipping will increase. The cost implication of this very much depends on the oil price development.
Commodity Strategist Sabine Schels from Bank of America Merrill Lynch gave their global energy outlook at the same seminar. For 2011, Bank of America Merrill Lynch expects a second round of quantitative easing coupled with limited supply increases from OPEC to reflate oil prices, even if US demand stays week. The Bank sees 2011 Brent crude oil average $85/bbl. A combination of negative real interest rates, record capital flows to emerging markets and extremely high utilisation rates across the commodity sector will support prices. The main point the analyst made is that negative real interest rates, a direct consequence of money printing in the US, encourage immediate consumption and discourage future production of scarce commodities. The impact is already visible today: Brent crude oil prices are up 12% year over year while oil demand growth is exceptionally strong, driven by emerging markets.
While the bank still sees oil prices rising to $100/bbl in 2011, it only sees limited risk of a substantial run up in prices well above that level. OPEC has more spare capacity than it did in 2008 and refining capacity has increased considerably. It is also hard to see how developed countries could cope with very high oil prices in 2011 given their weak economic recovery. Looking beyond 2011, the analysts do see oil prices moving towards previous highs again. “The commodity super-cycle is not over, it is just pausing”, said the Merrill Lynch analyst.