Controlling Emissions

On the emissions front, the industry has already seen tightening regulations from the International Maritime Organization (IMO) this year. With the implementation of Emission Control Areas (ECAs) on 1 January, the global maritime industry has seen more stringent sulfur oxide restrictions in ECA areas, such as the Baltic Sea, North Sea, North America and the United States Caribbean Sea.

Ships entering these areas must use fuels with 0.1 percent sulfur content, such as marine gas oil or liquefied natural gas (LNG), against the limit of 1 percent in effect until 31 December 2014. The stricter rules came into effect under the International Convention for the Prevention of Pollution, which covers emissions of sulfur oxides and particulate matter from ships.

There have also been discussions among regulators of expanding ECAs further into the entire Atlantic seaboard of Europe, the Mediterranean Sea, coastal Korea, the Sea of Japan, the Australian coast, the shipping lanes of Singapore, Malaysia and Indonesia, and coastal China.

Outside the emission control areas, the current limit for sulfur content of fuel oil is 3.5 percent but this will fall globally to 0.5 percent on 1 January 2020. The 2020 date is subject to a review, to be completed by 2018. Depending on the outcome, this date could be deferred by the IMO to 1 January 2025.

On the plus side, marine lubricant producers should benefit as new vessels come on-stream and lower oil prices reduce transport costs, said Kunal Mahajan, product manager at U.S.-based consultancy Kline & Co.s energy division. But increasing emission regulations and an increasingly fragmented market requiring multiple marine engine oil grades mean that producers have to be on their toes to keep ahead of industry changes and new competitors.

Ship owners and operators are considering a number of key technologies to meet the emerging emission limits, and this could impact both overall lubricant demand and the type of lubricant used. The fuel sulfur regulation we expect to come in 2020/2025 will trigger a much bigger change to the shipping industry as well as to the specific fuel (or LNG) demand than the introduction of the ECA zones in 2015, said Jan Toschka, general manager of Shell Marine Products.

In the next few years, [the solution used] really depends on a vessels trading routes, such as how much time the vessel sails within ECA zones, Toschka noted. Solutions like scrubbers and low-sulfur fuel are available … but we believe that LNG will play an increasingly important role going forward. Consequently, we have already developed the required lubricants for LNG and also for other low-sulfur fuel solutions.

Shell Marine Products was among the first to introduce a line of ECA-approved marine lubricants last September. One of the key products is Shell Alexia S3, formulated for use in two-stroke engines with low sulfur and distillate fuels up to 0.5 percent sulfur. Other products are targeted at vessels with medium-speed four-stroke engines as well as those with gas-powered engines such as Shells chartered barge Greenstream, a 100 percent LNG-powered barge that carries goods along Europes Rhine River.

Shell is one of the top five producers of marine lubricants worldwide, the others being ExxonMobil, Castrol, Chevron and Total Lubmarine. Together, these companies account for about 90 percent of global supply of about 2.05 million tons, according to Kline data.

The combination of newer high-performance engines, practices like slow steaming and ECA zone implementation, have presented increased complexity to ship operators, who tend to switch fuels and engine oils as they go in and out of ECA zones, said Toschka.

Shipping companies can use a range of emission control technologies to meet the new standards, said Klines Mahajan. The most likely option is to fit the engine with a scrubber that reduces a vessels sulfur emissions. Scrubber use is low at the moment (just a few hundred ships worldwide) due to the high cost to retrofit a ship. But because using scrubbers increases fuel consumption, Mahajan suggested that uptake will increase after 2020 and will boost lubricant demand after the IMOs global sulfur norms take effect in 2020 or 2025.

On the other hand, Mahajan said that LNG is the most appropriate technology to meet new norms because it reduces both sulfur oxide and nitrogen oxide emissions. But a big question mark is its availability as there are few LNG bunkering facilities right now, he noted.

Another technology to reduce emissions is selective catalytic reduction, which has been in use since the 1990s; however, it can be used on only four-stroke engines. In contrast, exhaust gas recirculation is a new technology still in the testing phase. Mahajan said that neither technology is likely to have much impact on lube demand.

Lube Demand

According to Mahajan, regulation will be the most important factor determining the type of lubricant to be used in the next few years. The use of low-sulfur fuels means shipping companies will need lubes with a base number lower than 40, he said. Also, ships operating in the U.S. have to abide by the U.S. Environmental Protection Agencys Vessel General Permit system, which regulates discharges incidental to the normal operation of commercial vessels. This will increase demand for the more environmentally acceptable lubes.

Marine lubricant demand has been declining for several years due to the weak global economy following the financial crisis of 2008. Kline data puts global marine lubricant demand at 2.05 million tons in 2013, registering a 0.7 percent decline from 2.11 million tons in 2010.

Most of the demand for marine lubes is engine oils of which cylinder oils, system oils (for two-stroke engines) and trunk-piston engine oils (for four-stroke engines) are the major sectors. Other, smaller marine lubricant markets include hydraulic fluids, gear oils, turbine oils, refrigeration and compressor oils, stern tube oils and greases.

The biggest demand in terms of end use sector is the deep sea segment, which accounts for 87 percent of total activity and includes container shipping, roll-on roll-off vessels and bulkers, while inland and coastal activity (mostly fishing) accounts for 13 percent of demand.

Over the next five years, the biggest factor in determining demand for marine lubes is likely to be global seaborne trade, which Mahajan expects to rise by an average annual rate of 4 percent to 2020, as the global economy improves, particularly in Asia with increased demand for commodities such as oil, coal and iron ore.

However, mitigating this growth in demand for lubes will be the increased use of the practice of slow steaming – where ships operate at slower speeds to save fuel – which has now become normal operating practice across most shipping companies. Slow steaming has reduced fuel consumption, which has had an adverse effect on global marine lubes demand. At the same time, because ships are going slower, engine load has to be reduced. Therefore, engines are facing the problem of corrosion – more sulfuric acid is deposited on engines, so ships now require lubes with a higher base number, in the range 80 to 100.

Another factor mitigating demand growth is the younger and more efficient fleet profile. Before the economic crisis, the industry ordered a lot of new vessels, but downturn meant utilization rates declined, so ship owners scrapped their older vessels. The average age of the fleet fell as newer more efficient ships replaced older ones. According to Mahajan, the proportion of ships older than 15 years in the world fleet has declined by more than 5 percent since 2010, which will further reduce lube demand.

What the Future Holds

Shells Toschka is optimistic about the prospects for the global marine business, which has been boosted by lower crude oil prices that, in turn, have helped increase overall global trade and demand. Lower fuel prices have obviously reduced the cost of transporting goods. This benefits the chartering company the most, as they are the ones who benefit from the savings, Toschka noted. It is likely that we will see less slow steaming and, therefore, more and faster vessel journeys. But at this stage, it is too early to say if this is a trend.

Toschka is also keeping an eye on China, which now is not only the worlds biggest producer of merchant ships, but also the source or destination of much of the shipping activity. China is very important for the shipping industry, as most new ships are now built in China, he said. This requires reliable and timely supply of lubricants into the shipyards.

To cope with the future challenges and more difficult economic environment, Shell envisions a growing consolidation of shipping companies and centralization of processes. For lubricant demand, we see an even greater need for flawless operations and reliable supply. Thats why Shell Marine Products constantly expands our port network as well as offering a number of technical services matching the increasing drive for highest performance, added Toschka.

Shipping follows economic growth, and there are always several trends at the same time, Toschka continued. Recently, we have seen more oil production in the U.S. impacting tanker operations, lower oil prices impacting offshore operations, more demand for the largest container vessels reducing unit transportation costs and a growing cruise market.

Toschka indicated that technical services are an increasingly important element of the overall offer to marine lube customers. With EALs (environmentally acceptable lubricants), new regulations, multiple cylinder oils, massive pressure on costs and a strong push from the engine manufactures, the marine industry is a lot more complex than it used to be, and customers are looking for support from their oil suppliers.

Such technical services include offering used oil analysis programs, helping to interpret and implement OEM requirements, cylinder oil condition monitoring and assisting ship operators in crew development. We have seen the demand for ECA lubricants outpace most initial estimates, which has led us to expand availabilities of our different products. For example, we have expanded the availability of Shell Alexia S3 to over 330 ports in 20 countries.

It seems the marine lubes industry is at a crossroads. Global trade is growing again, which will boost overall marine lube demand, but slow steaming will mitigate growth. And whereas slow steaming requires lubes with a higher base number, low emission requirements in ECAs will call for lubes with lower base numbers.

Klines Mahajan concluded, Overall demand for marine lubes is increasing, but we will need an industry producing multiple base number products. So the key challenge for producers is to provide a wide array
of oils at competitive prices.