In a series of articles, Beth Bradley and Chris Moxon examine the legal issues arising from the modern drive for environmentally aware shipping, following the entry into force on 1 January 2015 of the requirement for 0.1% sulphur in fuel oil within designated Emission Control Areas (ECAs).
Issue 2: Alternative Fuels
Increasing environmental regulation, running costs and dwindling fossil fuel resources are primary drivers in the search for safe, low cost alternatives to using heavy fuel oil in shipping.
The search for suitable alternative fuels is at an early stage. Biofuels, fuel cells powered by electricity or renewables, nuclear power and LNG are all sources which are being investigated. However, the use of LNG to power vessels is probably the alternative which is at the most advanced stage. Over the coming decades, increased infrastructure, the availability of LNG bunkering vessels and new builds capable of running on LNG are likely to result in LNG emerging as the forerunner in alternative fuels.
There are already a small number of LNG fuelled vessels in the market which, owing to the available infrastructure, tend to focus on short sea operations in areas where gas bunkering facilities (truck to ship / terminal to ship) are already available. As vessels which are capable of providing LNG bunkers at sea are built, the ability of larger ocean going vessels to operate on LNG will grow. Although investment in alternative fuels is expensive and risky – pioneering owners face the prospect of unforeseen technical issues whether trialling a new build or retrofitting a vessel, as well as a practical lack of bunkering facilities, as alternative energy providers are unlikely to invest in infrastructure without an obvious market to supply – the march towards alternative fuels is inexorable.
Alternative fuels coming on line will give rise to changes in the contractual arrangements governing chartering and supplying fuel. Many of the standard forms presently in use will need to be revised.
Charterparty clauses relating to fuel specifications, performance, fuel supply arrangements, sampling/testing and safety will need to be tailored according to the fuel being used. Given potential infrastructure problems in delivering the relevant fuel (insufficient supply vessels / truck or terminal supply) trading limits and deviation clauses may also have to be reviewed.
Supply contracts will also need to be changed. The lack of infrastructure creates commercial challenges. Owners who want to use an alternative fuel, but do not wish to invest in the supply infrastructure, may find that in order to secure supply, they will have to enter into long term commitments with their suppliers. While, in theory, such arrangements ought to mean a certainty of supply, they also carry the risk of pricing fluctuations and change in local regulations and licensing issues.
In a market which has frequently adapted well to change on a practical level, the updating of contracts has often suffered a drag effect as new wording is tried and tested. For owners contemplating a move into alternative fuels, the potential contractual ramifications ought to be given just as much consideration as the (more) exciting technical developments.