Choices and challenges: the EEXI and the tanker sector

The IMO’s tools for reductions in carbon emissions and intensity have significant implications for vessel operators, writes Filippos Nikolatsopoulos, manager, business development, ABS.

The IMO’s Energy Efficiency Existing Ship Index or EEXI is not yet in force, but its impact is already being felt across the industry. In the tanker shipping sector, owners are beginning to recognise that the EEXI poses significant challenges to the commercial, technical and safety aspects of their vessel operations.

In simple terms, the EEXI represents the application of the Energy Efficiency Design Index (EEDI) to existing ships rather than newbuildings. However, since 70% of current global tanker fleet was contracted prior to January 2013 and delivered prior to July 2015, these ships do not have an EEDI value, so their EEXI will have to be estimated using the guidelines developed by IMO.

Analysis by ABS suggests that almost 7,000 tankers are likely to have to explore alternative compliance options to meet their target EEXI values. The options available to them include a reduction in propulsive power known as an Engine Power Limitation (EPL) and if this is not enough to reach the required target, these ships will need to consider retrofits of energy efficiency technologies (EETs).

Tankers contracted after 1 January 2013 and delivered post 1 July 2015 already have an EEDI value assigned, but of almost 1,800 vessels for which data is available, ABS estimates that around 400 of these relatively young vessels will not automatically comply with EEXI requirements. These ships will also have to explore EEXI compliance options, most likely an EPL.

Commercial aspects

While the impact of the reduction factors is not known for all ships, in some cases the degree of compliance required is such that an EPL could create challenges for the vessel to adhere to its contractual requirements; even young vessels may not be able to comply with charterparty terms.

Because there is no data for 70% of vessels without an EEDI, we cannot know for certain that they won’t comply with the EEXI but it seems likely many of them will find it challenging.

The full impact on the fleet is hard to quantify and some predictions are already being made as to how much scrapping is likely to follow. In some cases, especially for older tankers, it could be that scrapping is the cost-effective option rather than risk a stranded asset that cannot be traded profitably or in regulatory compliance in coming years, even if it is technically feasible.

What is sure is that shipowners need to understand the implications of an EPL and whether investment in EETs will pay off. The ability of a vessel to apply an EPL reduction and still trade at charterparty speeds is a balancing act in terms of meeting the regulations and remaining commercially viable.

An issue for tanker operators could be that even relatively young vessels will have to compete with newer, more efficient vessels able to operate at higher speeds. Being forced to significantly reduce operating speeds across a fleet can also mean lower utilisation, which could result in less income for the operator.

In the case of long term charter agreements, tanker owners may need to enter renegotiations with their customers on the basis of what speeds are defined by the charterparty. Considering also that an instruction by a charterer to speed up could push the vessel towards non compliance, communication between charterer and owner will be more important than ever.

What is also clear is that owners and operators need to sit down with ABS soon to study their fleet’s operating profile and evaluate what levels of EPL are safe and practical and whether additional EETs are required.

Operational issues

The concept of an EPL is not a wholly new one and for many ships seeking compliance it may prove to be sufficient to meet EEXI requirements. From a technical point of view a 30-35% reduction in engine power can be feasible but the ship must still have the required reserve when sailing in rough seas or harsh weather.

If a vessel is forced by circumstance to depart from its agreed EPL, the impact has to be monitored and reported to the vessel’s class society and Flag Administration and appropriate verification may be needed in order to report the restoration of the EPL. The operator will not be able to ‘turn off’ the EPL simply to meet the terms of a charterparty.

Another issue will be a potential increase in maintenance costs where an EPL is applied. From a decade of slow steaming, the industry is well aware of the very detrimental effect on engines and components that can be caused by operating an engine at lower than its designed power level and the additional maintenance and spare parts that may be required.

Adoption of EETs is very much a secondary solution to be used in combination with an EPL and these are more likely to come into play after IMO adopts its Carbon Intensity Indicator (CII) tool, which will require a persistent downwards trajectory of carbon emissions.

While EEXI is a technical measure requiring one-time certification, the CII will be an operational measure, mandating year-to-year operational efficiency improvements. After tankers have been certified in compliance with the required EEXI, they will have to remain compliant with a downward carbon trajectory to 2030, improving their carbon intensity on an annual basis from an operational perspective.

The question owners must answer is how much further their carbon reduction can go from a technical perspective when the ships have already reduced their installed power. Far more concerning for owners is that by analysing their current engine power and emissions, it is possible to predict that even tankers that comply with the EEXI can be in the lowest CII category, meaning they may be subject to ‘market discrimination’.

Safety matters

Owners must also consider the implications of their compliance choices on the safe operations of their vessels. Reducing power will naturally mean reductions in manoeuvrability and owners need to be satisfied that they can lower the available power without compromising the safety margins of the vessel.

At this stage it is uncertain whether assessment in accordance with IMO guidelines for determining minimum propulsion power (MPP) will be required when applying an EPL, nor whether there will there be specific ‘down limit’ on EPL given that reductions cannot be unlimited for safety reasons.

However it is important for every tanker owner and operator to be certain that a reduction of the propulsion power does not compromise the safety of their people and property.

There will be cases where adoption of an EPL will not be sufficient to achieve the mandatory EEXI and at the same time satisfy the commercial and safety requirements of the vessel. This implies an important question; what is the optimum combination of EPL and energy efficiency technologies in order for a vessel to remain both commercially viable and operationally safe?

ABS already assists tanker owners on choosing the percentage of applied EPL and further improving vessel’s EEXI with the use of EETs, carrying out sensitivity studies to explore the boundaries of vessel’s speed and safety for any combination of EPL and the three categories of EETs as defined by IMO.

ABS offers deep experience in the guidance it provides to tanker fleet owners and operators, which takes into account the evolving regulatory landscape to help them make sense of their operations over time rather than as a one-off process.