LNG to score well under new FuelEU regulations from 2025

Taking into account methane slip during the combustion process and depending on their engine systems, some of these vessels could still meet the tightening FuelEU regulations ten years from now, Albrecht Grell,  Managing Director of maritime emissions specialist, OceanScore, told Seatrade Maritime News yesterday.  

This is in stark contrast to many other ship sectors in which vessels continue to run on very low sulphur fuel oil (VLSFO) or marine gasoil (MGO), for example. In fact, maritime emissions experts at OceanScore have estimated that shipping will incur FuelEU penalties approaching $1.5 billion next year across the 13,000 vessels of more than 5,000gt trading within or into the EU/EEA. However vessel liabilities will vary significantly depending on type of fuel and consumption.

The Hamburg firm predicts that passenger vessels will be hardest hit, incurring an average annual penalty of more than $560,000. Ro-pax and ro-ro vessels will also incur heavy penalties – an annual average of $520,000 and $340,000 respectively. Container lines operating ships on conventional fuels won’t escape either, with average penalties of more than $230,000 a year.

But there are substantial variations within these segments. Some passenger ships and Ro-pax vessels could be hit with bills as high as $2-2.7 million, the firm said.

Related:FuelEU maritime regulation: Synergies with existing legal frameworks and advancement of alternative maritime solutions

Conversely, however, ships using fuels of lower carbon intensity will generate surpluses, rather than deficits, and it will be possible to use these to offset penalties. This could cut the net FuelEU bill by more than half, to about $735 million, the expert said.

Grell explained why LNG and LPG carriers, as well as other vessels using LNG as fuel, will fare well under the new emission rules. The reference value for well-to-wake emissions used by the IMO and the EU, he said,  is 89.3 gCO2e per megajoule (MJ). MGO typically works out at 90.8 gCO2e/MJ and VLSFO at 91.7 gCO2e/MJ. Vessels using these fuels will therefore be penalised.

LNG typically has a value of 82.1 gCO2e/MJ and, depending on a ship’s combustion system, this can fall further to the low 70s. This explains why many of these ships will continue to meet tightening FuelEU targets in the years ahead, Grell said.

The firm’s analysis indicates that LNG carriers will account for 78% of the total likely market surplus, with gas carriers contributing a further 8%. Container ships using LNG as fuel will also come in positive territory, contributing another 8%.

The astute use of pooling will be essential to minimise exposure to penalties. Initial costs of FuelEU for most conventionally fuelled vessels will be about one third of those associated with EU ETS next year when that regulation will have a 70% phase-in.

Related:Emissions management firm to support FuelEU Maritime compliance

But FuelEU will become more costly at the end of the decade when it requires greenhouse gas intensity to be reduced by a further 6%, and then by another 14.5% from 2035. At that time, many of the record number of LNG carriers currently on order will still be in the early years of their operating lives.

It is also likely that, by then, the LNG sector’s endeavours to cut methane slip may have paid off. Other technologies such as carbon capture may also have become standard ships features by then.

Speaking about the immediate challenge, Grell declared: “It is critical for shipping companies to determine a baseline for expected FuelEU costs to secure proper planning and budgeting processes to compare different mitigation options, as well as decide what to do with outstanding compliance balances.”

He continued: “It is therefore incumbent on shipowners to define their strategies not only towards fuel choices and the use of onshore power but also towards handling of residual compliance balances such as pooling, banking and borrowing of balances, to mitigate the financial impact of FuelEU.”