Environmental Regulations on Vessels Giving Rise to Mixed Market Prospects

There are mixed prospects on how the oil refinery and shipbuilding industries will respond as the International Maritime Organization (IMO) will tighten environmental regulations on vessels beginning in 2020. While the oil refinery industry which currently dominates the vessel fuel market has begun to keep their markets, the shipbuilding industry is expecting liquefied natural gas (LNG) to rise as a substitute for current oil for ships.

According to the oil refinery and shipbuilding industry on November 6, the IMO decided to strengthen its sulfur content regulation from 3.5% to 0.5% for ships on international routes beginning in 2020. So, the decision is expected to drive changes not only to the shipping industry but also to related industries.

There are three ways for shipping companies to respond to the IMO’s tightening of gas emissions regulations. The first is to use low-sulfur oil conforming to IMO standards and the second to mount scrubbers which are sulfuric acid reduction devices on existing vessels. The third is to dismantle existing vessels and build new LNG-powered vessels.

The problem is that all three methods need money from shipping companies. The use of low-sulfur oil as a fuel means that the investment cost will be smaller than that of installing sulfuric acid reduction devices or ordering new vessels but freight cost burdens will rise. This is because the price of low-sulfur oil is more than twice as high as that of current oil for existing vessels. If you install a scrubber or build a ship that uses different fuels such as LNG, fuel cost burdens may decrease. However, it is never easy for shipping companies to invest tens to hundreds of billions of US dollars or to attract ship finance funds in the current downturn of the shipping industry.

While the shipping industry is more troubled with the issue, the refining industry is preparing for a market change by investing in desulfurization facilities. SK Energy, a subsidiary of SK Innovation, will invest one trillion won in the Ulsan Complex by 2020 and build a desulfurization facility with a production capacity of 40,000 barrels per day. This facility will be able to extract gasoline and diesel oil from crude oil and oil residues will be re-processed to obtain fuel oil with low-sulfur content and basic petrochemical raw materials. S-Oil, which invested a total of 4.8 trillion won (US$4.3 billion) in the construction of facilities such as “Future Advanced Complex”, will increase production of low-sulfur oil starting next year.

“The IMO and governments of nations around the world are also strengthening environmental regulations to prevent air pollution,” said an official of the oil refinery industry. “As demand is expected to decline, high-sulfur oil production systems will disappear in the next few years and the vessel oil market will be led by low-sulfur oil.”

The shipbuilding industry has been taking a wait-and-see attitude. In the beginning, the shipbuilding industry expected shipping companies to start ordering LNG carriers this year, considering that it takes one to two years to build a ship. However, shipbuilders are delaying ship fuel selection and global new shipbuilding orders are not meeting expectations this year. According to the shipbuilding industry, the Hyundai Heavy Industries Group received 21 orders for LNG-powered ships and LNG-ready ships (ships that can be converted to LNG-powered ships), while Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries landed two LNG-powered vessel contracts, respectively.

“It is up to the shipping industry to decide whether to use low-sulfur oil or LNG as a fuel,” said an official of the shipbuilding industry. “Currently, we are leaning toward LNG-powered ships but the overall trend is to change like the automobile market where cars were divided into gasoline- and diesel-powered and electric cars.”

ORIGINAL SOURCE: http://www.hellenicshippingnews.com/environmental-regulations-on-vessels-giving-rise-to-mixed-market-prospects/

Autonomous Ships: Regulations Left in Their Wake?

The general public is well aware of the continuing development of autonomous vehicles. The media constantly provides stories on the advances of these self-driving cars, trucks and cabs. Autonomous vehicles are expected to increase safety while also resulting in significant cost savings in the transportation of goods.

While not receiving the same amount of media coverage, the technology for autonomous ships is also rapidly developing. Earlier this year, a Norwegian partnership announced plans to build the world’s first fully-autonomous containership. The goal is for manned voyages to begin in 2018, with unmanned voyages to begin in 2020.

Rolls Royce has been a leader regarding the technology developments for autonomous vessels. Earlier this year, it announced its collaboration with a Finnish ferry company in developing an intelligent awareness system for vessels. Rolls Royce expects to have the intelligent awareness system commercially available by the end of this year. The company also has a goal of an autonomous vessel in commercial use by the end of the decade.

As with vehicles, the proponents of autonomous vessels tout improved safety as one of the primary benefits. In addition, cost savings are predicted through reduced crewing requirements, and improved predictive maintenance of vessels and equipment. Critics do not believe that unmanned vessels can ever be safely operated and question the ability to perform emergency onboard repairs and the ability to respond to other unexpected developments at sea.

For the maritime industry, much of the technology necessary for autonomous vessels is already in place but continues to be adapted. Not surprisingly, the regulatory bodies are moving at a slower pace. While there is debate on the extent of change necessary for the regulation of autonomous vessels, certainly some challenges will be presented.

How much regulation is necessary?

The extent of regulatory change will depend on the level of autonomy permitted. Lloyd’s Register has published classification guidance for six autonomy levels. The guidance is intended to provide designers, builders and operators with clarity on identifying the desired level of autonomy. The first three levels all require that navigational technology is on a manned vessel to provide support in decision making. The next three levels all involve unmanned vessels with different levels of remote operation, including complete autonomy. The remote operation includes shore-based operators who can intervene when notified by the navigational system.

National vs. international regulations

Vessels are generally subject to two regulatory authorities. There is national regulation for domestic trade with the International Maritime Organization (IMO) responsible for regulation of international trade. The IMO has begun evaluating the need for modified regulations for autonomous ships in international trade. The international regulations require multilateral agreements among the various countries participating in a particular trade. The expectation is that any revisions to IMO regulations could take up to ten years due to competing interests.

As a result, most of the projects currently underway with fully autonomous ships are intended for national waters under national regulation. A particular nation can permit their use prior to adoption of international regulations. European countries are taking the lead in this regard.

Still under scrutiny

There is no clear consensus on what, if any, new or modifications to existing regulations are necessary. However, certain areas have garnered scrutiny. The crew of an autonomous vessel is not clear. Is a remote operator a member of the crew who needs to be licensed? Who is the captain of an autonomous vessel?

Another area of particular importance will be modifications to collision regulations. The existing regulations have standardized rules including when the ships are in sight of each other. These regulations do not contemplate autonomous vessels and will almost certainly need some revision. Rules on the obligations and responsibilities between manned and unmanned ships will need clarification.

The pressure for modification of regulations will only increase with the inevitable technological advancements. The scope of those modifications will be based in large part on the permitted level of autonomy for vessels. Maritime law is one of the oldest and most settled areas of law in the world, successfully adapting from sail to steam and beyond. There is no doubt the same will hold true for autonomous vessels but expect some interesting developments.

About Michael F. Merlie

Michael F. Merlie is a partner at the law firm Gawthrop Greenwood, PC. He specializes in admiralty and maritime law, as well as business law, financing, secure transactions, mergers and acquisitions, and real estate law. Michael can be reached at [email protected] or 610-696-8225.

Original Source: http://maritime-executive.com/editorials/autonomous-ships-regulations-left-in-their-wake