‘Bleak picture’ for owners who fail to make post-2015 plans

Per Brinchmann, vice-president of Wilh Wilhelmsen ASA, drafted a bleak picture for ship owners who were not already planning ahead for what is to come. He points 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 gas oil 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.

According to the company, one option, which is clean and quite inexpensive, is LNG (liquid natural gas). Aksel Skjervheim, head of fuel markets in Gasnor, a Norwegian provider, addressed shipowners at a recent Wilhelmsen-hosted seminar, and 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 Wärtsilä, MAN, Rolls-Royce and Mitsubishi are all developing dual-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. On the positive side, the use of LNG will 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, HFO will cease to be viable for many ships, and MGO demand will increase. The cost implication of this very much depends on oil price developments.

Commodity Strategist Sabine Schels from Bank of America Merrill Lynch addressed 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. While the bank still sees oil prices rising to $100/barrel in 2011, it only sees limited risk of a substantial run up in prices well above that level. Looking beyond 2011, the analysts see oil prices moving towards previous highs again. “The commodity super-cycle is not over, it is just pausing”, said the Merrill Lynch analyst.