One of the biggest issues facing ship owners these days is what do to about the IMO emissions regulations, particularly those referring to sulfur oxides (SOx), which come into effect in January 2015 within Emissions Control Areas (ECAs), and worldwide by 2020.
Within the container feeder vessel segment, there are two primary options available to mitigate this issue, gas scrubbers, or a conversion to LNG as a primary fuel source. With the push toward development of shore-based LNG infrastructure, the successful use of LNG power within the ferry and platform supply sectors, and the nature of the container feeder business, these ships have been tagged as potential early adopters of LNG technology. For this reason they are the focus of the below study written by Dr Pierre C. Sames, Senior Vice President – Research and Rule Development, at Germanischer Lloyd. This study is an extension of the GL-MAN joint study on costs and benefits of LNG as a ship fuel for container vessels as published by GL’s Nonstop magazine in May 2012.
The following study assesses the costs and benefits of both LNG and scrubber technology, as applied to six differently sized feeder vessels in comparison with a reference vessel using marine fuel oil, which is or will be required by existing and upcoming regulations in various regions of operation.
The costs of implementing these technologies are compared with the expected benefits resulting from fuel cost differences. The underlying model assumes that the lowest-cost fuel available is used at any given time. To account for the space requirements of the respective technology, the benefit is reduced proportionately.
The same main assumptions were used for this study as for the GL-MAN joint study, on LNG for large container vessels. However, in the present study, LNG tank volumes were chosen to give the selected vessels full roundtrip endurance on the relevant routes. This effectively reduces uncertainties associated with the LNG supply infrastructure. The calculated costs for on-board LNG systems cover the tanks, the bunker station, gas preparation equipment, gas lines and the engine. Type-C tanks were assumed for all vessels in this study.
The fuel price scenario from the GL-MAN joint study was used in this study, as well. Small scale LNG distribution costs of $4 USD/mmBTU were added to the current wholesale LNG price in northern Europe.
The annual cost advantages compared to the reference vessel can be computed using the assumptions described above for each technology and vessel size. For a 1,250 TEU vessel using LNG or scrubber technology the study predicts significant annual cost advantages and rapid payback from 2015 onwards for ships operating exclusively inside ECAs.
The benefits of technologies such as LNG or scrubbers depend strongly on their usage. The higher the ECA exposure, the shorter the payback time for all vessel sizes. Payback time is shorter for the smaller container vessels (900 TEU and 1,250 TEU) since the capital investment needed for their LNG systems is smaller than for larger vessels.
The LNG tank accounts for the largest portion of the additional investment. In this study, all vessel sizes are assumed to be equipped with type-C tanks. Payback time roughly doubles with a doubling in specific LNG tank system costs. Changes in LNG distribution costs will significantly affect the payback scenarios. Within ECAs, the fuel of choice is MGO, and the price difference between MGO and LNG is the key factor determining the payback time for LNG technology. At current prices, the difference is significant enough to yield rapid payback for all vessel sizes. Payback is similar for vessels with identical ECA exposure levels.
Using LNG as a ship fuel can be assumed to result in lower emissions and, given the right circumstances, lower fuel costs. For container feeder vessels mostly operating inside ECAs, the relative attractiveness of LNG as a ship fuel compared to scrubber systems mainly depends on LNG price levels. At a difference of 6 to 8 USD/mmBTU or more between MGO and LNG, an LNG system will be more profitable than a scrubber system.
Newbuilding vs Conversion
Roughly 20 percent of the current container feeder fleet consists of ships less than five years old, making them potential candidates for conversion to LNG. However, only vessels equipped with electronically controlled two-stroke main engines or engines similar to dual-fuel four-stroke engines can be converted easily.
In general, a conversion to LNG is anticipated to be more costly than the additional investment for an LNG system on board a newbuild. The extra cost of labour and the loss of earnings during the conversion period may add 15 to 20 percent to the additional investment cost for an original LNG system; payback time will increase accordingly.
This study was conducted using the model and key assumptions from the GL-MAN joint study on LNG as a fuel for large container vessels. Analyses for specific vessels on specific trading routes are available on request.
The original study and more can be found in the Sept 2012 edition of GL’s Nonstop magazine.