INTERVIEW: Thailand's Precious Shipping calls for swift IMO action on GHG goals: PSL MD

Thailand's Precious Shipping is calling upon the International Maritime Organization for more clarity and swift action on the UN agency's greenhouse gases emissions cut rules, so that the dry bulk carrier can determine a viable fuel of choice as the company continues to rejuvenate its fleet to reduce carbon footprint, PSL Managing Director Khalid Hashim said in an interview to S&P Global Commodity Insights.

"We have been at 38 ships for quite a while. Our ships have been aging because we have not been adding anything to the fleet," Hashim said, noting the average age of the company's fleet is around 12 years.

"That is still younger than most of the old fleet in our sector, but we are getting closer to their average age," Hashim said.

The company's immediate goal is to cut the grams of CO2/ton-mile by replacing its fleet to meet stricter environmental emissions rules such as those meant for shipping in the EU's Fit for 55 package, Hashim said.

The company has installed all possible energy saving devices on its ships and replacing the fleet is the only other option now.

"So, recently we have sold an old ship built in 2002 and bought a six-year-old replacement for the 22-year-old ship we sold...Her [replacement ship's] CO2 grams/ton-mile carried makes her an A category ship in terms of CII [carbon intensity indicator]," Hashim said.

In April, the company also sold another old ship for around $13.5 million-$13.6 million, Hashim said. "We are looking at how we can replace this one."

"Coming to fuel choice, if you look at the sector in which we are in, not a single ship is running today with any form of alternative fuel. They are all running on actual fuel oil," Hashim said.

While there is some talk in the sector of taking on methanol or ammonia as engines get commercialized, these fuel options are still distant for smaller ships.

"The issue with smaller ships such as ours is that we sail to so many different parts of the world that we may not get alternative fuels supply at all those places," Hashim said. "So, it's complex: First, we don't know what the fuel of the future is. Second, we don't know where it will be available. Third, we don't know of anyone owning a bunch of ships with alternative fuel engines in our sector."

Meanwhile, there are significant costs associated with the new zero or near zero-carbon fuels.

"If I buy an ammonia ready ship, it will cost me $10 [million]-$12 million more than a fuel oil burning ship. So, how do I justify that extra cost and who is going to pay me about 33% more in charter hire?" Hashim asked.

To meet the EU Fit for 55, Precious Shipping is open to tying up with any other company in the larger sector which has a pool of ships that is burning alternative fuels such as methanol or green ammonia, for a lower carbon footprint, Hashim said.

"We can start burning biofuels -- biodiesel blends with fuel oil -- on our own ships. If the fuel oil cost is, say, about $600/mt, then for a 20% or 30% blend, the bunker fuel cost will likely be up to $1,100/mt. We don't mind doing all of that," Hashim said, adding "until we have more clarity, we can't do much more than this."

Urgent action

The IMO can do much more than they are doing presently to expedite maritime decarbonization, Hashim said, adding IMO needs to act swiftly to put in place a pricing mechanism for GHG or a market-based measure.

"We already have an EU ETS, making the efficient ships or less fuel burning ships go to EU because for every ton of CO2 that you release on the voyage, you have to pay a tax to the EU," Hashim said.

"Will CO2 come down because of the tax? No, because the rest of the not so efficient ships will sail to the rest of the world's ports except the EU. So, the total CO2 will remain the same, assuming all things being equal without disruptions due to geopolitical risks such as the Red Sea and the possible closure of the Strait of Hormuz," Hashim said, noting, "however, if the IMO puts a pricing mechanism in place, then it is going to be different because then wherever your ships sail to, you have to pay the tax."

The IMO should impose a carbon tax of $100/mt of CO2 emitted and double this after five years from the start of such a tax, to aid research and development into alternate fuel burning engines and to subsidize the cost of alternative fuels being used by owners that are the first movers in the alternative fuel space, Hashim said.

"When you start this five-year doubling of market-based measures, at that point you say that in another 2-3 years' time, any ship that is older than 20 years has to be scrapped," Hashim said, adding that after putting the 20-year scrapping rule into force, the IMO should require the scrapping of any new fuel oil burning ship too that is delivered after that date, meaning that no more fuel burning ships can be delivered after such a date.

With a hard implementation of such rules, the shipping markets will tighten, and freight rates will go up.

"Our customers will be forced to pay for the transition and then things will improve. Otherwise, decarbonization of shipping will stay a pipe dream," Hashim said.