Large Tankers

Large Tankers By Paul Bartlett

Kyoei Tanker’s VLCC Tanzawa, delivered in 2019, was the first VLCC to be ‘scrubber’ ready

ESTs set to generate new revenue stream for repairers

As the world’s drive to decarbonise continues to accelerate, the long-term future of the tanker business is uncertain. However, for one or possibly two generations of ships, crude oil and products will continue to underpin much of the world’s economy. For these vessels, the take-up of energy saving technologies (ESTs) offers significant scope to raise ship efficiency. For VLCCs, there are large gains to be made, according to experts, and these are likely to increase further as new regulations enter force.

Rather like the provision of cleaner shore power to offshore oil installations, the fuels used by tankers and the relative operating efficiency of individual ships will be tracked closely in the future. Proactive tanker owners have already embarked on a range of initiatives to make the operation of their vessels more sustainable. This is partly because they observe the actions of the world’s major energy companies, many of which have declared their intentions to achieve net-zero emissions, including the transport of their raw materials and products, over the next three decades, in some cases sooner.

Meanwhile, many of shipping’s largest customers, some of which are also major tanker charterers, are also ramping up their own environmental, society, governance (ESG) targets. They are focusing on many issues but the carbon profile of their transport arrangements is high on the list of priorities. Their suppliers of transport services, therefore – tanker owners – cannot afford to dismiss this development unless they are prepared to see their customer base dwindle, as charterers take other options.

In the VLCC sector, the take-up of so-called ‘eco’ technologies has gathered pace this year. According to data from Clarkson Research and in deadweight terms, 22.3% of the VLCC fleet consisted of ‘eco’ vessels in January 2019, rising to 29.1% in January 2020. Today, the figure stands at 33.4%. However, there were only three LNG-capable VLCCs on order at the beginning of this year - now there are 18.

The percentage of the tanker orderbook, based on deadweight, that is alternative fuel capable, has doubled from 12% at the beginning of January, to 24% at the beginning of May. This is the largest figure for any of the major sectors, according to Clarkson, and compares with 19% for container ships on order, and just 5% for bulk carriers.

The research firm has also analysed tanker owners’ take-up of ESTs generally, with statistics applying to tankers of 10,000 dwt and above. Just less than a fifth of the tanker fleet has EST installations so far - Clarkson reported some 1,023 tankers out of a total of 5,412. Many of the ESTs relate to measures designed to improve water flow around the hull. These include bow enhancement (35), pre-swirl stators (8), propeller ducts (478), propeller boss cap fins (44), and rudder bulbs (84). Other ESTs included exhaust gas economisers (546), waste heat recovery systems (2) and one air lubrication system.

The operating efficiency and the carbon footprint of existing VLCCs is an important issue for owners, particularly in light of IMO’s move to introduce two new indices for existing ships at the beginning of 2023. Its energy efficiency existing ship index (EEXI) and carbon intensity indicator (CII) will require the assessment of all existing vessels and their assignment to one of five grades – from A (best) to E (worst). Many older ships are expected to fall into lower categories. Owners of ships falling into the E sector will need to take immediate remedial steps, while those operating VLCCs in the D grouping over three separate assessments will also need to take efficiency improvement measures.

Experts say that the most likely strategy to be adopted by owners of poor-performing ships is simply to reduce speed. However, such a step can have important repercussions on hull and propeller performance. Most of the ESTs adopted so far have been designed to improve water flow, especially around the stern and through the propeller. More of these systems are likely now to be required.

Many older ships falling into lower categories are likely to be phased out, based on their owners’ reluctance to commit to another special survey, more upgrades, and possibly a ballast water installation. For younger ships, however, such an investment could be well worthwhile. For repairers, this represents a potentially new market for retrofits which could yield an interesting new revenue stream.

Speaking at an online press conference recently, held to announce the acquisition by Japan’s Nakashima Propeller of a majority stake in Hamburg-based Becker Marine Systems (BMS), the German company’s joint managing directors, Dirk Lehmann and Henning Kuhlmann, commented on the scope. “Because we are expert suppliers in the area in front of and behind the propeller, with well-known products such as the Becker Mewis Duct and the Becker Rudder family, the cooperation with the globally leading propeller manufacturer is, of course, a perfect fit.”

The Becker Mewis system

The two companies will continue to operate under their own respective brands and with the same executives. However, they will now be able to offer integrated systems for both new and existing ships that have been coordinated in a design process based on computational fluid dynamics tests in the companies’ respective laboratories. The combined efficiency gains are likely to make a significant difference to the performance of all existing ship types, but the potential for VLCCs, in particular, is likely to prove very interesting.

Scrap or spend?

As VLCC owners continue to face a devastating market in terms of rates and few significantly positive signs in the months ahead, they face difficult decisions on strategy. Easing of Covid-19 restrictions in some countries has led to a significant recovery in economic activity and rising demand for energy, according to sources. But others point out that this is being more than offset by shattering statistics from India, for example, where oil demand has plunged amid the rising infection rate, lockdowns across a number of states, and the closure of parts of the economy.

Some analysts are suggesting that the move by OPEC+ to ease output cuts in the three months between May and July could make a difference to VLCC demand. However, any recovery will start from a desperately low base - average tanker earnings hit a 30-year low of US$5,939/day in February, according to Clarkson, and had only recovered by about a thousand dollars a day by late April.

Tonnage supply is not helped by the fact that ships deployed on storage contracts continue to come off charter. By mid-April, Clarkson statistics reveal that floating storage accounted for about 5% of tanker capacity, down from 12% at the May 2020 peak.

What then explains the optimism that is still evident among some VLCC operators? Well, almost a quarter of the world’s 839-ship VLCC fleet is more than 15 years old - 61 VLCCs are more than 20 years old, according to Clarkson, and a further 143 are in the 15-19 year range.

Many of these ships already lie in charterers’ second-grade options owing to relatively thirsty engines and other operational aspects that lack the benefits of younger ships in the class. In a weak market, therefore, owners of these vessels are likely to find employment opportunities harder to pin down. These tankers are also likely to fall into IMO’s lower bands on carbon efficiency, possibly requiring their owners to invest in remedial upgrades. A number of them may not yet have ballast water system installations, adding another lumpy capital expense if another five years or more of trading is considered an option.

Meanwhile, the number of VLCCs on order that incorporate new technologies or a readiness to adopt them in future continues to grow. Competing with these tankers is likely to become steadily more challenging during this decade.

The recycling option, therefore, could hold significant appeal. Although the sector has been severely disrupted by the explosion in COVID-19 cases in India, where all spare oxygen supplies have been diverted to hospitals. Nevertheless, there are widespread reports of virus-related deaths in many rural parts of the country, blamed on a lack of oxygen. Meanwhile, some representatives from Indian villages claimed that the Government’s statistics significantly under-reported fatalities because the flow of statistical data was unreliable.

The founder and Chief Executive of GMS, the world’s largest cash buyer of end-of-life ships, Dr Anil Sharma, was quoted by Bloomberg at the end of April, GMS founder and chief executive of BMS, Dr Anil Sharma, said that the oxygen shortage is not expected to last for long and the situation should improve in May. However, he added that the recycling sector would then be limited by the onset of monsoons in India which could extend the slowdown in operations into June.

GMS noted other challenges facing owners who wish to sell for recycling in the market today. ‘As is’ sales, for example, are difficult to arrange because ship’s crews that are used in this type of sale may be prevented from entering certain countries as a virus precaution. Although GMS executives do not expect the oxygen

Despite the fact that infection rates have also been rising in Bangladesh and Pakistan, albeit more slowly, recycling prices are still holding up well. At the beginning of May, Bangladeshi buyers were paying typical prices of $510/light displacement ton for tankers, yielding an end-of-life cash injection of, say, $20m or more.

For other tanker owners, however, there are even more fundamental recycling challenges. The only facilities capable of recycling VLCCs are located on the Indian subcontinent where no facilities have yet been approved under the European Union Ship Recycling Regulation. Despite many yards having been audited and validated as compliant with IMO’s Hong Kong Convention by international classification societies, it is still not possible for a European-based owner to recycle his VLCC there.

The recycling facility at GMS

Repair yards to face major transition as VLCC fuels change

Euronav, Europe’s largest tanker company, has signed an agreement with South Korea’s Hyundai Samho for two, option one, LNG-ready VLCCs for delivery in the fourth quarter of 2022 and the first quarter of 2023. The company is also working with the yard and classification society to develop ‘ammonia-ready’ notation, enabling carbon emissions to be reduced to zero when technology, logistics and the regulatory framework allows.

An early sign of shipowners’ acceptance of new fuel technologies, the announcement follows and earlier move by BW Group to convert the

Euronav has signed an agreement with Hyundai Samho for two, option one, LNG-ready VLCCs

first of a series of very large gas carriers to LPG dual-fuel propulsion. A retrofit of the 2015-built BW Gemini, 54,500 dwt, too about 60 days and was carried out at You Lian Dockyard in Shenzhen, China. Up to 12 conversions of this type are thought to be under consideration and, although LPG itself offers a range of emissions-related benefits, it is understood that the conversions may include some elements of preparing for ammonia operation sometime in the future.

These are just two recent examples of moves by shipowners to move forward on the marine fuel conundrum. However, this does not get round the fundamental issue of cost. All of the possible marine fuels of the future are many times more expensive than those that are used today. And that is why a stout band of organisations representing the world’s shipowners and headed by the International Chamber of Shipping (ICS), has called on governments to tax carbon emissions. The move, supported by Bimco, CLIA and the World Shipping Council, comes amid growing frustration at what is seen as IMO’s slow pace of change.

To be fair, the 174-member UN agency has to operate on a consensus basis and the interests of its country members vary widely. However, the shipowners’ organisations are concerned that they will face a patchwork of regional regulations, emission trading schemes, taxes and other measures. This would make ship operation immensely and unnecessarily more complicated than it is today.

Whether or not the ICS move on a global carbon tax gains traction, it is another sign for repair yards which could initially prepare for a significant volume of fuel conversions whilst, in the longer term, preparing their facilities and skills base for the repair of vessels running on new fuels including ammonia, hydrogen and methanol, eventually in their e-forms rather than the carbon-intensive production processes used today. The fuels will therefore be many times more expensive - hence the need for the carbon tax so that their development is not delayed by economics.

Meanwhile, classification society DNV has declared that ships operating on LNG are likely to switch to ammonia, rather than hydrogen, as a next-generation fuel. However, ship operators will not undertake such conversions unless they have full confidence in the supply of ammonia as a marine fuel. DNV’s regional manager for Southeast Asia, Pacific and India, Cristina Saenz de Santa Maria, speaking at a recent webinar, said that the first retrofits from LNG to ammonia are likely to take place from the 2030s.

We supply products & solutions for all your tank management requirements.

Tank Cleaning Equipment Tank Level Gauging Gas Freeing Fan P/V Valves Electropneumatic Gauging

www.scanjet.se