IMO 2020:

[ceo_energemsier + 1,818]

Tankers defer retrofits to cash in on record freight rates

 

 

SINGAPORE (Reuters) - Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalise on an unexpected surge in freight rates, three trade sources said.

U.S. sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the U.S. Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the U.S. Gulf to China cost around $6 million-$8 million.

 

 

 

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

"We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates," said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called 'clean' or refined fuels like gasoline to 'dirty' cargoes that include crude oil, despite the costs of having to clean them later.

"Current rate levels are a no-brainer for pushing back scrubber retrofitting," said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulphur limit of 0.5%, down from 3.5% currently, significantly inflating shippers' fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulphur from emissions, will be allowed to continue burning cheaper high-sulphur fuels.

For scrubbers to be fitted, ships must be sidelined between 30 to 60 days, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

"One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date," said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

"With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note," Kapoor said.

 

[Douglas Buckland + 6,308]

Question:

What would happen if the ship owners collectively refused to refit their vessels to burn the lower sulphur fuel?

[Gerry Maddoux + 3,627]

Unless the IMO has changed its rules, it is mostly all bark and no bite. However, Flag States adhere to MARPOL, which monitors pollution from ocean-going freighters. Since sulfur trails have been linked to lightning storms along the shipping routes, especially in the Indian Ocean and the South China Sea, and since sulfur pollution has been associated with acid rain, insurers are the ones with the teeth, cooperating with MARPOL. Large shipping lines are likely going to adhere, trampers probably won't until they're under pressure by Flag States, insurers, and agencies under the auspices of IMO such as MARPOL. The shipping rates for very large crude carriers are through the roof right now. Understandably they don't want to pause for the installation of scrubbers, but they can well afford to buy low-sulfur fuel. There are 60,000 to 80,000 of these vessels, so this is no small matter. The "squeeze" is likely to come from Singapore, which has traditionally been the hub for bunker fuels, and they're shrinking their supplies of 3.5 cap sulfur fuel grades. I had coffee this morning with a guy who ran shipping logistics from Hong Kong for twenty years, just to clarify my credentials in this matter, because I had exactly the same question you asked. He gave me a detailed, erudite set of explanations, which my brain distilled down to the contents of this post. This is potentially a very, very big deal for the fuel business, as most of the larger ships will find it more economical to keep underway than to line up and wait for scrubbers to be installed.  

[ceo_energemsier + 1,818]

1 hour ago, Gerry Maddoux said:

Unless the IMO has changed its rules, it is mostly all bark and no bite. However, Flag States adhere to MARPOL, which monitors pollution from ocean-going freighters. Since sulfur trails have been linked to lightning storms along the shipping routes, especially in the Indian Ocean and the South China Sea, and since sulfur pollution has been associated with acid rain, insurers are the ones with the teeth, cooperating with MARPOL. Large shipping lines are likely going to adhere, trampers probably won't until they're under pressure by Flag States, insurers, and agencies under the auspices of IMO such as MARPOL. The shipping rates for very large crude carriers are through the roof right now. Understandably they don't want to pause for the installation of scrubbers, but they can well afford to buy low-sulfur fuel. There are 60,000 to 80,000 of these vessels, so this is no small matter. The "squeeze" is likely to come from Singapore, which has traditionally been the hub for bunker fuels, and they're shrinking their supplies of 3.5 cap sulfur fuel grades. I had coffee this morning with a guy who ran shipping logistics from Hong Kong for twenty years, just to clarify my credentials in this matter, because I had exactly the same question you asked. He gave me a detailed, erudite set of explanations, which my brain distilled down to the contents of this post. This is potentially a very, very big deal for the fuel business, as most of the larger ships will find it more economical to keep underway than to line up and wait for scrubbers to be installed.  

You gave a very good answer, also consider the EU with the sulphur restrictions in their waters and ports and the US/North America, Singapore is a major fuel oil hub, so is the USAC/USGC, NWE adn Euro-Med.

Another factor in the shipping rates going thru the roof these days is the sanctions on Chinese companies such as COSCO as the article refers to.

IMO2020 is a huge deal , companies across the globe are scrambling to comply or be barred from making voyages to key demand areas.

 

[Old-Ruffneck + 1,223]

1 hour ago, Douglas Buckland said:

Question:

What would happen if the ship owners collectively refused to refit their vessels to burn the lower sulphur fuel?

Imagine the cost of not just retrofit but new engines as the old bunker burners are designed to burn high sulpur fuel. It's a lubricant and can't be removed from those tankers. I would assume in the end-game the refineries will just taper down over period of time so the large fleet can get new engines installed. 

One good erruption from Hawaii's volcano and Iceland's spew more sulfur than the combined 50k+ fleet. Going to be interesting to see how they pull this off.

[ceo_energemsier + 1,818]

 

[ceo_energemsier + 1,818]

 

[ceo_energemsier + 1,818]

 

[Douglas Buckland + 6,308]

Yet another ‘new green deal’ gimmick with no thought given to implementation, cost, or consequences.

[ceo_energemsier + 1,818]

IMO2020 is going to create a boost for US shale crude and light sweet crudes and refineries that are ahead of game with new refining tech and new tech to clean up and upgrade high sulphur crudes and high sulphur fuels oils/bunkers stand to make a very good profit .

We are going to have a lot of sulphur piling up in different places.

[Douglas Buckland + 6,308]

Jan has a very valid point. When these vessels were designed, these scrubbers or new engines were not taken into account. This new equipment will, to some extent, affect the center of buoyancy, the metacentric height, center of gravity, etc....

I would assume that above and beyond the new equipment and installation costs, these vessels will be required to be re-surveyed.

[Jan van Eck + 7,558]

7 minutes ago, Douglas Buckland said:

I would assume that above and beyond the new equipment and installation costs, these vessels will be required to be re-surveyed.

That is likely.  The cost for a scrubber on a VLCC will run around $2,500,000.   But remember that the ship will also have to have a water ballast treatment system, for yet another two million.  The systems will be eating up scarce real estate on those ships. 

Prior to the COSCO shipping fleet getting sanctioned, the typical daily rate (or "charter daily rate equivalent," as the charterer hires the boat for a fixed price, and if there are extra days, the shipowner eats it) had sunk to around $5,000/day.  That is less than the cost of operating the ship!  Once the embargo hit, the rates zoomed up to $300,000 a day.  No one in the industry had ever seen such an explosion in rates.  If a VLCC took only two round trips at those rates, the entire capital cost of the ship was paid off.  Overall, shipowners are now earning about a 75% return on equity, which in this cruddy, over-supplied industry, is just unfathomable.  Entire shipping fleets will be paid off and the companies finally out of debt, all due to the wrath of the USA.   Never underestimate what the Americans can do - or will do, if provoked. Interesting that the world has still not grasped that, in this day. 

57 minutes ago, Old-Ruffneck said:

Imagine the cost of not just retrofit but new engines as the old bunker burners are designed to burn high sulfur fuel. It's a lubricant and can't be removed from those tankers. I would assume in the end-game the refineries will just taper down over period of time so the large fleet can get new engines installed. 

No chance.  The ship structure is built around the engines, in those big monsters.  You would have to dismantle the engine spaces.  Nobody is going to do that.  The ship will be scrapped before anybody is prepared to consider a new engine in there. 

Expect massive disruption in the shipping industry!

[ceo_energemsier + 1,818]

17 minutes ago, Jan van Eck said:

That is likely.  The cost for a scrubber on a VLCC will run around $2,500,000.   But remember that the ship will also have to have a water ballast treatment system, for yet another two million.  The systems will be eating up scarce real estate on those ships. 

Prior to the COSCO shipping fleet getting sanctioned, the typical daily rate (or "charter daily rate equivalent," as the charterer hires the boat for a fixed price, and if there are extra days, the shipowner eats it) had sunk to around $5,000/day.  That is less than the cost of operating the ship!  Once the embargo hit, the rates zoomed up to $300,000 a day.  No one in the industry had ever seen such an explosion in rates.  If a VLCC took only two round trips at those rates, the entire capital cost of the ship was paid off.  Overall, shipowners are now earning about a 75% return on equity, which in this cruddy, over-supplied industry, is just unfathomable.  Entire shipping fleets will be paid off and the companies finally out of debt, all due to the wrath of the USA.   Never underestimate what the Americans can do - or will do, if provoked. Interesting that the world has still not grasped that, in this day. 

No chance.  The ship structure is built around the engines, in those big monsters.  You would have to dismantle the engine spaces.  Nobody is going to do that.  The ship will be scrapped before anybody is prepared to consider a new engine in there. 

Expect massive disruption in the shipping industry!

Hi Jan,

How have you been? Missed your intellect around here , cheers!

[Gerry Maddoux + 3,627]

Lots of moving parts to the IMO2020 mandate. Not to antagonize the shale-haters but since the drone strike on the Saudis' facility took out about half its desulfurization separators, there would have been (potentially) an even greater disruption to shipping due to a shortage of light, sweet crude oil . . . were it not for the shale.

On another note, shipping rates have jumped dramatically. Human nature would suggest that perhaps the large fleet owners are front-running the cost of either retrofitting engines or installing scrubbers . . . a logical way of doing business. 

[Jan van Eck + 7,558]

1 hour ago, Gerry Maddoux said:

front-running the cost of either retrofitting engines

Those big marine diesels should be capable of burning straight refined marine #2 diesel, which is sold as "marine gasoil," directly. If you know of a technical reason why that cannot be done, please do advise!  I think you might end up with a little less power than with Bunker "C", but other than that, the engine should run sweetly on gasoil.  

What is the cetane rating of bunker C?  I vaguely recall it is about 17.   Marine gasoil is likely around 40.  Anyone know the numbers, please do chime in!

[Jan van Eck + 7,558]

2 hours ago, Gerry Maddoux said:

there would have been (potentially) an even greater disruption to shipping due to a shortage of light, sweet crude oil . . . were it not for the shale.

Light sweet out of the Bakken fields is rail-shipped direct to the Northwest ports and sold as bunker to large freighters, and loaded in direct from the railcar, no refining necessary.  Works just fine!

[Gerry Maddoux + 3,627]

Unfortunately, I exhausted most of my knowledge about this topic in my first post--and even that was merely a "shipping fuel for dummies" course that I received over coffee from one of the logistics guys in international shipping. To be honest, I was interested mainly in what this new change would mean to an investor in shale oil (more precisely, Bakken light sweet). I was skeptical that the IMO2020 would even be adhered to, as I felt that the profitability of big shippers held sway over any regulatory component of the UN. My logistics guy set me straight: It seems that the heavily polluted Chinese ports have embraced the MARPOL sulfur cap of 0.5%, which set the tone of things. I remember just enough about cetane ratings to make a fool of myself. My "expert" did say that the trend for compliance was simply to blend Gasoil with enough low sulfur residuals to get to the sulfur cap of 0.5%. I wasn't even aware of this IMO2020 mandate until the Barron's article came out about a month ago. I can't find it or I'd post it. I am amazed that something of this magnitude--we're talking about 4% of the fossil fuels burned each day, contributing a large percentage of sulfur oxides, possibly the worst of the emission gases on the environment--has gotten so little attention by ordinary pudknockers like myself. In the Barron's article, one large freighter burning 3.5% sulfur-laden bunker fuel equated to thousands of land-based vehicles burning diesel. Over and out, as anymore from me would be a stretch! 

[ceo_energemsier + 1,818]

9 hours ago, Jan van Eck said:

Light sweet out of the Bakken fields is rail-shipped direct to the Northwest ports and sold as bunker to large freighters, and loaded in direct from the railcar, no refining necessary.  Works just fine!

It has also been done with Eagle Ford Condensate and Permian Light and Ultra Light.

Some companies have been offering "additives" for inline blending to use Bakken and other shale crudes  as a direct fuel.

I have seen 3 companies offering similar additives to use shale crudes directly into diesel generators as fuel and have seen a couple of mining companies and heavy equipment operators using the additives in trial runs. Will let you know of the results when I get those.

[ceo_energemsier + 1,818]

1 hour ago, Gerry Maddoux said:

Unfortunately, I exhausted most of my knowledge about this topic in my first post--and even that was merely a "shipping fuel for dummies" course that I received over coffee from one of the logistics guys in international shipping. To be honest, I was interested mainly in what this new change would mean to an investor in shale oil (more precisely, Bakken light sweet). I was skeptical that the IMO2020 would even be adhered to, as I felt that the profitability of big shippers held sway over any regulatory component of the UN. My logistics guy set me straight: It seems that the heavily polluted Chinese ports have embraced the MARPOL sulfur cap of 0.5%, which set the tone of things. I remember just enough about cetane ratings to make a fool of myself. My "expert" did say that the trend for compliance was simply to blend Gasoil with enough low sulfur residuals to get to the sulfur cap of 0.5%. I wasn't even aware of this IMO2020 mandate until the Barron's article came out about a month ago. I can't find it or I'd post it. I am amazed that something of this magnitude--we're talking about 4% of the fossil fuels burned each day, contributing a large percentage of sulfur oxides, possibly the worst of the emission gases on the environment--has gotten so little attention by ordinary pudknockers like myself. In the Barron's article, one large freighter burning 3.5% sulfur-laden bunker fuel equated to thousands of land-based vehicles burning diesel. Over and out, as anymore from me would be a stretch! 

We have had a very active and lively discussion about IMO2020 on oilprice for over a year now. Lot of good info available in the posts. I think I linked the two major threads about it under this topic.

Shale crudes will be in great demand to be used by refiners to process into the low sulphur IMO2020 compliant fuels as they have low sulphur to begin with and easier to process than heavier and sour crudes. Many USGC refiners are ready for the IMO2020 with their specific IMO2020 compliant fuels. Singapore has many refiners also ready for it as is NWE.

 

 

[ronwagn + 6,290]

13 hours ago, ceo_energemsier said:

 

How will hydrogen compete with natural gas? My understanding is that hydrogen is presently made with natural gas so is therefore substantially more expensive. It has virtually no supply line compared to the one already in existence for natural gas. It is also much more difficult to store safely in tanks.

[ceo_energemsier + 1,818]

4 minutes ago, ronwagn said:

How will hydrogen compete with natural gas? My understanding is that hydrogen is presently made with natural gas so is therefore substantially more expensive. It has virtually no supply line compared to the one already in existence for natural gas. It is also much more difficult to store safely in tanks.

I think for the foreseeable future , hydrogen will be limited in scope for the shipping industry vs natgas , seems like Toyota is moving rapidly with hydrogen fuel for cars specially in Australia.

Large shipping companies are investing, buying new builds that are LNG fueled and also converting marine fuel powered vessels to LNG.

[ronwagn + 6,290]

13 hours ago, ceo_energemsier said:

IMO2020 is going to create a boost for US shale crude and light sweet crudes and refineries that are ahead of game with new refining tech and new tech to clean up and upgrade high sulphur crudes and high sulphur fuels oils/bunkers stand to make a very good profit .

We are going to have a lot of sulphur piling up in different places.

I wonder if that sulfur could be burned safely in a high tech furnace that would destroy the pollutants. It was formerly used as an insecticide that was burned to treat gardens. 

http://www.usesof.net/uses-of-sulfur.html

[ronwagn + 6,290]

14 hours ago, Jan van Eck said:

That is likely.  The cost for a scrubber on a VLCC will run around $2,500,000.   But remember that the ship will also have to have a water ballast treatment system, for yet another two million.  The systems will be eating up scarce real estate on those ships. 

Prior to the COSCO shipping fleet getting sanctioned, the typical daily rate (or "charter daily rate equivalent," as the charterer hires the boat for a fixed price, and if there are extra days, the shipowner eats it) had sunk to around $5,000/day.  That is less than the cost of operating the ship!  Once the embargo hit, the rates zoomed up to $300,000 a day.  No one in the industry had ever seen such an explosion in rates.  If a VLCC took only two round trips at those rates, the entire capital cost of the ship was paid off.  Overall, shipowners are now earning about a 75% return on equity, which in this cruddy, over-supplied industry, is just unfathomable.  Entire shipping fleets will be paid off and the companies finally out of debt, all due to the wrath of the USA.   Never underestimate what the Americans can do - or will do, if provoked. Interesting that the world has still not grasped that, in this day. 

No chance.  The ship structure is built around the engines, in those big monsters.  You would have to dismantle the engine spaces.  Nobody is going to do that.  The ship will be scrapped before anybody is prepared to consider a new engine in there. 

Expect massive disruption in the shipping industry!

There is little difference in a natural gas engine. Only the fuel system needs to be changed. LNG does require somewhat more space for the tanks. 

https://www.houstonchronicle.com/business/energy/article/Building-LNG-powered-ships-newest-industry-along-14062299.php

Edited October 19, 2019 by ronwagn
reference

[Gerry Maddoux + 3,627]

Finally found that quote I was looking for:

"Did you know? Just one of the world’s largest container ships can emit about as much pollution as 50 million cars. Further, the 15 largest ships in the world emit as much nitrogen oxide and sulphur oxide as the world’s 760 million cars."

This is probably old-hat to those of you who have been discussing this, but to me it is just astonishing that EV's are attracting all the ink and this maritime pollution has received so little attention. Or maybe I just went to sleep for a while . . . 😀

 

[ceo_energemsier + 1,818]

1 hour ago, ronwagn said:

How will hydrogen compete with natural gas? My understanding is that hydrogen is presently made with natural gas so is therefore substantially more expensive. It has virtually no supply line compared to the one already in existence for natural gas. It is also much more difficult to store safely in tanks.

I should have mentioned the use of hydrogen in low sulphur fuels.

Here is a link to the article

 

Asia’s demand for low-sulphur fuel drives hydrogen gas consumption - Linde

https://www.cnbc.com/2019/08/27/reuters-america-asias-demand-for-low-sulphur-fuel-drives-hydrogen-gas-consumption--linde.html