Recent restrictions on fuel sulphur levels could seriously impact on the bottom lines of cruise operators and refiners.
The cruise industry, like any other right now, is plagued by uncertainty. Unforeseen events such as the Costa Concordia tragedy and worldwide economic volatility mean that cruise operators have to be prepared for many eventualities. If one thing is certain, it is something that most of us wish was not: high and still-rising bunker fuel prices.
At the time of going to print, prices were well above $700 a ton, placing an even greater burden on organisations for whom fuel accounts for up to half their operating costs. And with economic volatility prevailing in Europe and political uncertainty in the Middle East, there is no reason to believe that prices will not rise further. This is a big enough problem in itself, without the need to comply with ever-more stringent environmental regulations.
Bunker fuel is a heavy, environmentally unfriendly fuel that could fairly be described as the dregs of the fractional distillation process. Attempts to make shipping cleaner are hence understandable, although the targets in place will prove a considerable - some might say unrealistic - challenge to cruise operators.
The International Maritime Organisation's (IMO) MARPOL Annex VI regulations were first introduced in 2005 and have been updated on a number of occasions since. The most recent amendments were approved last year and will force cruise lines to switch to a fuel with a sulphur content of no greater than 0.1% for operations in designated emission control areas. These areas include a number of cruise hotspots such as the Baltic and North Seas, where the restrictions already apply, and both coasts of the US, where the new regulations come into force this summer.
By 2020, all cruise ships must burn fuel with a sulphur limit of 0.5%, no matter which body of water they are operating in. The announcements of these targets was hardly warmly received. Carnival Cruise Lines UK CEO David Dingle describes the measures as "badly researched" and "the biggest single threat to the cruise industry". It is clear that considerable investment is required to bring sulphur levels down from the current standard of 1%, and this would be very difficult to achieve without passengers feeling some of the pain.
Finding the right fuel
According to Francesco Balbi, environmental coordinator at MSC Cruises, identifying and producing sufficient amounts of low-sulphur fuel is the single biggest expense. There are a few options out there, but none are far enough along in their development to act as a genuine replacement for bunker fuel.
"The main challenge when burning cleaner fuels is the increase in fuel price," he says. "This is mainly due to the fact that low-sulphur fuel is a distillate product and there are high costs involved in the desulphurisation process. This also means extra costs for shipping."
Circumstances dictate that European operators will find it easier to adjust than their US counterparts. The source crude in the Baltic and North Seas is relatively sweet, so meeting the current 1% limit is not difficult. And if this fuel cannot be accessed, most countries will accept the next least sulphurous fuel available. According to Michael Crye, executive vice-president of the Cruise Line International Association (CLIA), things are less simple across the Atlantic.
"There is some question, particularly on the west coast of North America, as to whether this 1% sulphur content fuel will be available," he explains. "There was recently a presentation by the British Columbia Chamber of Shipping in which one of the suppliers from the region admitted that they did not consider it a mainline fuel. They do not have a large enough demand for this fuel on the west coast, so refineries are not going to gear up in order to handle it."
The LNG alternative
The only ready-made, low-sulphur alternative is gas oil, which, while much less damaging to the environment, is no more efficient and almost twice as expensive as bunker fuel. A more feasible solution, although one that is still very much in the developmental phase, is liquefied natural gas (LNG).
Already in use in other parts of the shipping industry, LNG is a clean, efficient source of fuel that is technologically proven to work on large-scale commercial vessels. Finnish engine manufacturer Wärtsilä has played a lead role in the realisation of LNG-powered cruise ships. Together with the Aker Shipyard, the company designed a conceptual vessel propelled by the same dual-fuel engines that are found on LNG-powered tankers.
A few modifications were made with the cruise industry in mind.
"Everyone is discussing legislation and anticipating that it will only get more stringent," says Fred Danska, director of Wärtsilä's cruise business. "We had to find a novel location for the fuel, so decided to put it in the centre-line casing. It provides free ventilation and does not disrupt the aesthetics of the interior."
Things have started to move beyond the theoretical. In February, Viking Line signed an agreement with AGA Gas for LNG to power the 2,800-capacity Viking Grace, which is currently under construction in Turku, Finland. The company predicts that this vessel will produce 20-30% less CO2 than one powered by bunker fuel. Still, with the economic climate hardly perfect for building anew, the cost of converting an entire fleet to LNG is prohibitively expensive for most. According to Crye, the key will be finding ways to reduce emissions without having to change fuel type.
"The 2015 date, when the sulphur content in emission control areas goes down to 0.1%, will have a significant impact on the cost of fuel," he explains. "We are in discussions with US and Canadian operators with regard to what we call equivalencies. For example, technology has developed to the point where you can now use exhaust gas scrubbers to bring emissions down to an equivalent level. We are also talking a lot about weighted emissions averaging. Ships might be able to burn ultra-low-sulphur fuel close to shore, allowing them to use higher-sulphur fuels further offshore."
Impact on itineraries
The success of these reduction methods is in large part dependent on bringing regulators onside. In Crye's view, this shouldn't be too difficult. If regulation is too strict, it would risk driving cruise business away from the affected itineraries, negatively impacting local economies.
"Certainly, weighted emissions averaging could make a significant contribution," he says. "The installation of exhaust gas scrubbers could too if we are able to get the regulatory regime in place where the wash water that is used in these scrubbers is allowed to be discharged.
"Also, there are plenty of energy-efficiency measures that can be carried out on board the ships, such as the capture of waste heat and using ultra-slick hull coatings. As an industry, if you are facing a possible 100% increase in the cost of fuel in emission control areas, it will inevitably make some itineraries much less desirable than others. This is worth considering."
Luckily, marine engineers have a head start in finding ways to reduce emissions. The current generation of cruise lines omits 25-30% less nitrous oxide than the one before, largely due to minor mechanical modifications. These include increasing compression ratios and making fuel injection technologies more efficient. Then there are advances in the way ships are designed, helped by a greater understanding of computational fuel dynamics. "Energy efficiency covers the organisation of the hull and appendices, engines propellers and motors," says Balbi. "Our research is not limited to fuels. We are looking at ship design, propulsion and the operation of machinery as well. MSC tries to work on all these categories."
The MARPOL Annex VI regulations pose a huge challenge for ship operators, refiners and engineers. Success will require big investment, technical ingenuity and, most importantly, a measure of understanding on the part of the regulators.