An industry driven by uncertainty

Back in the 1970s, the ground-breaking British comedian Spike Milligan had a series of surreal sketch-based TV shows. The established format of such programmes was for each sketch to have a clearly-defined beginning and end, and one often led into the next. Milligan, however, dispensed with such conventions, and sketches would often break off abruptly, the cast shuffling sideways off set, muttering “What are we going to do next? What are we going to do next?…”

It somehow felt as if the shipping industry was doing exactly the same thing during 2014. The last year may well be remembered as little more than ‘the year before 2015’. And 1 January 2015 marked the day that ship operators had to completely rethink their fuel policies if their voyages took them into emission control areas. Even as I write this, in early-December, the magic date, only two or three weeks ahead, is still surrounded in uncertainty and unknowns.

There are some certainties. A few ships will be operating exhaust gas scrubbers, and an even smaller number will be using LNG as fuel. For the rest though, their owners have been shuffling Milligan-like not wanting to commit themselves to a new sketch and deciding to burn distillate fuel in their existing engines, despite the expected heavy cost penalty.

Maybe they weren’t so daft. As 2014 draws to a close, rather than the expected rapid price hike in distillate fuels as refineries struggle to keep up with the surge in demand from the marine sector, oil prices have actually fallen sharply. But perhaps this just underlines the volatility of oil prices – they are just as likely to shoot up again, and it proves how closely shipping is controlled by oil prices, in cargo terms as well as fuel.

Where the main uncertainty lies, apart from the fuel supply and demand question, is just what will happen to the ships and their engines. At our Propulsion and Emissions conference last May we learned that changing fuels had many implications, as heavy fuel and distillate differ so greatly in their physical properties and lubricity, but neither the marine engine industry nor the oil industry had actually done any serious testing of large engines running on distillate fuels. Obviously, tests have now been undertaken, but we cannot help wondering what will happen in the ‘real’ world where ships’ crews might not follow the procedures as rigidly as the test engineers, and what the real effect will be on lubrication of cylinders and fuel pumps, operation of separators and fuel conditioning systems, and auxiliary equipment like boilers. Of course, all might go smoothly, and we hope it does. But the potential for problems is all too evident.

The falling oil price does not seem to be matched by any drop in the price of gas. So the expected wide price differential between MGO and LNG may not happen. Combined with the still unresolved issues of infrastructure and bunkering shipowners may be less inclined to opt for the gas option – at least at present. We had already seen one owner, Brittany Ferries, postpone its LNG plans because the figures did not add up.

Meanwhile we have seen that other gaseous fuels, beside LNG, could prove viable. CNG (compressed natural gas – i.e. the same methane end product, but stored at higher temperature therefore taking up greater volume) and ethane are contenders, as is LPG, and Stena announced the conversion of a ferry to run on methanol.

Another unanswered question bugging the shipping industry is ballast water treatment. Ships will be required to comply, and many expected the IMO Convention to be ratified during 2014, but the required percentage of world tonnage is still some way off. The date is nearer – Japan and Turkey were among the IMO member states signing up during the year – but it is still anybody’s guess when ratification will happen. Meanwhile, the US is going its own way and other regions, like Europe, could follow.

Europe has been trying to be one jump ahead of IMO on environmental matters in another respect. At the end of 2014, a system for MRV (monitoring reporting and verification) of carbon emissions looked likely to pass through the full European parliament. It contained a requirement for cargo reporting that was proving controversial, however.

In the shipbuilding world, the Far East has continued to dominate, with China and Korea yo-yoing between each other in the fight to become top shipbuilding nation. Korea has probably won out at the end of the year, with China’s uncertain economic situation affecting its yards. South Korea’s experience has allowed it to pick up orders for larger and more sophisticated ships – the current generation of very large container ships being a case in point, with the Maersk Triple-E series built at DSME being joined by the first of five for CSCL from Hyundai, exceeding the Triple-E’s capacity at 19,000teu.

China, meanwhile, surprised a lot of people with its effective takeover of Wärtsilä’s two-stroke engine business, though that remains firmly headquartered in Switzerland. And its more quality-conscious shipyards have been taking firm steps to cement a future in the offshore support vessel industry, which up to now has been – alongside cruise – still dominated by Europe. Whether this is a wise move we will have to see. At the beginning of the year offshore was seen as a flourishing business, but now, with the falling oil prices, it could be affected by the same issues of oversupply of tonnage that bedevil mainstream shipping.

Still, it is the offshore sector that seems to lead in marine engineering technology, so I will hand over to my contributor Stevie Knight for a detailed look at how offshore support ships fared in 2014.