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January 1st 2020 won’t just be the start of a new year or a new decade; it is a significant date for the international shipping industry as the most radical new rules for shipping fuels in decades are implemented. From New Year’s Day onwards, a 0.5% sulphur cap (or 500ppm) in fuel will be imposed globally, part of the International Maritime Organization’s aim to reduce greenhouse gas emissions from ships by 50% through 2050. Adopted in October 2016, the cap was already in discussion and debate long before it was codified. So there has been plenty of time to prepare. The question now is: is the shipping industry prepared for the new change?
But first, a little history. The first enforcement of global shipping emissions came through the IMO – a United Nations agency – in May 2005, when Annex VI of the MARPOL environmental convention came into effect. Earlier annexes of MARPOL dealt with other polluting factors, but Annex VI specifically addressed air pollution – including Nitrogen Oxides and Sulphur Oxides. Prior to this, shipping fuels and emissions were largely unregulated globally (although national and regional standards did apply). In 2008, the IMO set the global upper limit for sulphur in shipping fuels at 3.5% (or 3500 ppm), which came into effect 2012; the new 2020 cap is another great leap – possibly the greatest leap so far.
There are major challenges in meeting this new rules. For decades, ships plying international waters ran on heavy, high sulphur fuel oil. This itself was a change from the previous paradigm, where ships ran on coal. Why did the switch happen? Simple economics. As the world’s oil refining industries developed post-World War II, the focus was on producing high-value fuels such as gasoline, gasoil and jet fuel for the transportation revolution. If the crude oil processed was light and sweet, there wouldn’t be much left after refining. But if the crude was heavier and more sour, then there was a lot left over. This heavy fuel oil was embraced by the shipping industry as a more efficient (operationally and economically) fuel for ships. What was an unwanted by-product now had value. It was a boon for refiners, as they did not have to bother refining the HFO further. And it was a boon for shippers, a ready source of cheap fuel.
Heavy fuel oil – some with sulphur levels exceeding 15000 ppm – was used by shippers worldwide, especially in international waters where national emission standards would not apply. The IMO MARPOL Annex VI has changed that. There are two avenues to meeting the new 2020 standard –invest in an exhaust gas cleaning system (also known as a scrubber) that would allow the ship to continue to burn HFO, or switch to cleaner fuels – principally marine gasoil (MGO) or low-sulphur fuel oil (LSFO). The former seems less attractive – a Lloyd’s survey suggests only 19% of shipowners would go for scrubbers – and the latter has some restrictions… both technical (compatibility with engine systems) and logistic (requiring new blending and storage facilities). There is a third category – running on LNG – but that applies mainly to new ships. The vast majority will have to buy and burn compliant marine fuels.
Several questions are still up in the air. LSFO and MGO currently carry a US$250/ton premium over HFO, a major increase that shippers will have to pass on to their clients – using a tool known as the Bunker Adjustment Factor (BAF). Refiners – particularly those near key ports such as Singapore, Shanghai and Amsterdam – have already invested in capacity to produce more MGO and LSFO, so supply isn’t that much of an issue, outside of pockets of unavailability in smaller ports. Asian refineries, in fact, are already running a surplus of IMO 2020-compliant LSFO. But some countries are showing resistance, including Indonesia that opted out of IMO 2020 for domestic marine usage, citing the age of its fleet. However, in existing Emission Control Areas like the Baltic Sea, North Sea and the Caribbean Sea, an ultra-low sulfur limit of 0.1% (100ppm) applies – presaging a future where a similar limit will apply globally through an upcoming IMO resolution. But, and this is crucial to the success of the new policy, the IMO has not set out concrete fines and sanctions for non-compliance, leaving enforcement and penalties to the individual port authorities – a delegation of responsibility that could dilute the effectiveness of the mandate.
Adjusting to the new IMO 2020 rule will involve an intricate matching of supply and demand. And money. Money is at the heart of this issue, as refiners, shippers and ports invest money into meeting the new requirements. Shipping is about to get a lot cleaner, and more expensive. At stake, however, is the health of the planet itself. And it’s hard to put a price on achieving that, no matter how much money needs to be spent.
IMO 2020 Marine Fuel/Engine Regulations:
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In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.
In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.
Source: U.S. Energy Information Administration, Monthly Energy Review
Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.
Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.
Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.
Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.
Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Based on the U.S. Energy Information Administration's (EIA) annual survey of electric generators, natural gas-fired generators accounted for 43% of operating U.S. electricity generating capacity in 2019. These natural gas-fired generators provided 39% of electricity generation in 2019, more than any other source. Most of the natural gas-fired capacity added in recent decades uses combined-cycle technology, which surpassed coal-fired generators in 2018 to become the technology with the most electricity generating capacity in the United States.
Technological improvements have led to improved efficiency of natural gas generators since the mid-1980s, when combined-cycle plants began replacing older, less efficient steam turbines. For steam turbines, boilers combust fuel to generate steam that drives a turbine to generate electricity. Combustion turbines use a fuel-air mixture to spin a gas turbine. Combined-cycle units, as their name implies, combine these technologies: a fuel-air mixture spins gas turbines to generate electricity, and the excess heat from the gas turbine is used to generate steam for a steam turbine that generates additional electricity.
Combined-cycle generators generally operate for extended periods; combustion turbines and steam turbines are typically only used at times of peak load. Relatively few steam turbines have been installed since the late 1970s, and many steam turbines have been retired in recent years.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Not only are combined-cycle systems more efficient than steam or combustion turbines alone, the combined-cycle systems installed more recently are more efficient than the combined-cycle units installed more than a decade ago. These changes in efficiency have reduced the amount of natural gas needed to produce the same amount of electricity. Combined-cycle generators consume 80% of the natural gas used to generate electric power but provide 85% of total natural gas-fired electricity.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Every U.S. state, except Vermont and Hawaii, has at least one utility-scale natural gas electric power plant. Texas, Florida, and California—the three states with the most electricity consumption in 2019—each have more than 35 gigawatts of natural gas-fired capacity. In many states, the majority of this capacity is combined-cycle technology, but 44% of New York’s natural gas capacity is steam turbines and 67% of Illinois’s natural gas capacity is combustion turbines.
Countries that are not members of the Organization for Economic Cooperation and Development (OECD) in Asia, including China and India, and in Africa are home to more than two-thirds of the world population. These regions accounted for 44% of primary energy consumed by the electric sector in 2019, and the U.S. Energy Information Administration (EIA) projected they will reach 56% by 2050 in the Reference case in the International Energy Outlook 2019 (IEO2019). Changes in these economies significantly affect global energy markets.
Today, EIA is releasing its International Energy Outlook 2020 (IEO2020), which analyzes generating technology, fuel price, and infrastructure uncertainty in the electricity markets of Africa, Asia, and India. A related webcast presentation will begin this morning at 9:00 a.m. Eastern Time from the Center for Strategic and International Studies.
Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
IEO2020 focuses on the electricity sector, which consumes a growing share of the world’s primary energy. The makeup of the electricity sector is changing rapidly. The use of cost-efficient wind and solar technologies is increasing, and, in many regions of the world, use of lower-cost liquefied natural gas is also increasing. In IEO2019, EIA projected renewables to rise from about 20% of total energy consumed for electricity generation in 2010 to the largest single energy source by 2050.
The following are some key findings of IEO2020:
IEO2020 builds on the Reference case presented in IEO2019. The models, economic assumptions, and input oil prices from the IEO2019 Reference case largely remained unchanged, but EIA adjusted specific elements or assumptions to explore areas of uncertainty such as the rapid growth of renewable energy.
Because IEO2020 is based on the IEO2019 modeling platform and because it focuses on long-term electricity market dynamics, it does not include the impacts of COVID-19 and related mitigation efforts. The Annual Energy Outlook 2021 (AEO2021) and IEO2021 will both feature analyses of the impact of COVID-19 mitigation efforts on energy markets.
Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
Note: Click to enlarge.
With the IEO2020 release, EIA is publishing new Plain Language documentation of EIA’s World Energy Projection System (WEPS), the modeling system that EIA uses to produce IEO projections. EIA’s new Handbook of Energy Modeling Methods includes sections on most WEPS components, and EIA will release more sections in the coming months.
