By Kari Reinikainen
The cruise industry’s pathway to net-zero greenhouse gas emissions will require investment in updating existing ships to meet gradually tightening environmental legislation. This may not always be economically viable. Some ships may have to be recycled before they reach the age of 30 years.
In summer 2023, Denmark-based shipping organisation BIMCO published a report that forecast a sharp increase in recycling of ageing tonnage. Talking about all types of ships, Nils Rasmussen, BIMCO’s chief shipping analyst, said: “Many older ships are expected to be recycled earlier than normal due to the ever-tighter limits on greenhouse gas emissions. More than 15,000 ships and 600 million deadweight tons are therefore expected to be recycled between 2023 and 2032.” These figures are twice those of the past decade.
Citing IHS Markit data, he noted that while roughly 60% of cargo ships had been recycled by the age of 30, the figure for other vessels, which included cruise ships, was just over half that. Under 20% of the other ships were still in service at the age of 50.
A major question is the viability of converting ships to using types of fuels other than oil or LNG – a step that is expected to become necessary in the future. Shipowners have a wide range of tools they can use to cut emissions, comply with regulations, access finance, and ultimately maintain the value of their asset.
Compliance challenges
The transition to new, CO2-free energy sources poses a number of challenges that will lead to an increase in recycling of ageing cruise vessels, according to Finn Wollesen, managing director of Danish consultant naval architect company Knud E. Hansen.
“Not all are fit for conversion to use new fuels. One of the challenges that comes up concerns the need of space on board. To store the same amount of energy as fuel oil, methanol requires three times as much space. In the case of ammonia, the figure is five to six times, and for hydrogen it is sixteen times,” said Wollesen, underlining the initial technical challenge.
To show the extent of the challenges, a few years ago, Anders Ørgaard, chief commercial officer of OSK-ShipTech in Denmark, said that the company had done a study to determine how hydrogen could be suitable as fuel for the expedition cruise fleet currently in service. The results suggested that not one of them had the necessary space on board to allow this transition.
Technology on existing cruise ships must be updated sooner or later, due to new regulations, such as EEXI (Energy Efficiency Existing Ship Index) and the continually more demanding CII (Carbon Intensity Indicator), Markus Aarnio, chief naval architect of Foreship, told CruiseTimes.
Energy efficiency improvement means always improving both EEXI and CII. Adding VFDs (variable frequency drives) and improving heat recovery through, for example, absorption chillers and hull form modifications always helps. “Of course, many of these are more difficult on older ships than in the case of newbuildings, but not impossible,” Aarnio said.
When the efficiency means are not adequate, and when the propulsion fuel is not switched to lower-CO2 ones, complying with EEXI will need derating propulsion motors by fixed limitation. “This means the vessel’s maximum speed is lowered, which can affect itineraries, but is otherwise the easiest way to comply with EEXI,” Aarnio continued.
Complying with CII requirement, on the other hand, means continually decreasing CO2 emission. Here, energy efficiency improvements alone are nowhere near adequate. Considering the IMO’s target of net-zero greenhouse gas emissions by 2050, something more drastic is very soon required. The most obvious change is to switch to lower-carbon or even zero-carbon fuels.
Installing new fuel or propulsion systems can be particularly challenging for retrofits, because any big structural changes on a vessel that was initially designed to run on fossil fuels is likely to alter its metacentric height, maximum draft, or usage of the liquid tanks.
“In short, change one thing on a ship, and everything else is potentially affected too,” said Esa Henttinen, executive vice president for safety solutions at NAPA in Finland. “Adding to the complexity, a ship’s stability margins typically diminish as it gets older, due to the natural weight increase in the upper compartments. But with the power of data analysis and simulations, we can predict how a vessel will behave with new fuels or technologies even before the trials start – making it a highly cost-effective and zero-risk method to test and validate the project’s future success.”
Using the ship’s “digital twin”, which contains data on its unique structure and characteristics, it is possible to calculate the impact of added weight from scrubbers, batteries, or new fuel tanks on the vessel’s stability parameters, including trim, heel, and draft. This helps teams progress with confidence, having a full picture of those technologies’ operational and safety implications.
“All these things cost money and may affect the usability of the vessel,” said Aarnio. “Shipowners need to carefully consider what is possible on their existing fleet, and, if things seem too difficult and expensive, scrap the ships or sell them to someone who thinks they can successfully operate the ships in compliance with all new greenhouse gas emission regulations.”
Cost implications
Oslo-based classification society DNV and German engine designer MAN Energy Solutions (MAN ES) looked into the retrofitting of ships’ engines to use dual fuels and published an expert report on their findings. It concluded that four-stroke engines, which were used on cruise vessels, and ships with large bore sizes that conducted a sea trial 8–15 years ago appeared to be most suitable for such a conversion.
The report noted that the cost of retrofitting, including the fuel storage and fuel supply system, ranged between $5 million and $15 million, depending on the type of fuel. It said that, as a rule of thumb, this should not exceed 25 per cent of the newbuild cost in order to be economically viable: “A ship should typically have a minimum newbuild cost of around $50 million to be suitable for retrofitting.”
This covered quite a wide range of vessels and engine types. “Basically, all cruise ships and engines independent of their ages are suitable, from a technical point of view, for future fuels applications,” said Bernd Siebert, head of retrofit and upgrades after sales of marine and power at MAN PrimeServ in Germany.
It is also possible to use the same technologies to decarbonise older cruise vessels with a commercially reasonable investment after the age of 15 years. “We at MAN ES have the right technologies and solutions that at least we can avoid increasing ship recycling. But in general, this might be an issue for the future,” Siebert told CruiseTimes.
In principle, the higher the cost of fuel in the future, the more incentive there is for owners to invest in fuel-saving technologies. But it goes beyond that. “The cruise industry is very sensitive to the carbon-reducing initiatives. Given that the industry is very consumer focused – rather than the business to business of the traditional bulk and tanker industries – there is a stronger push to develop a green solution,” said Peter Shaerf, managing director of AMA Capital Partners in the US.
Shaerf believes, instinctively, that cruise ship recycling will accelerate in the future, as the industry becomes more green focused – and especially as pressure from consumers is likely to accelerate the recycling or laying up of older ships.
“That being said, the counterbalance is that there is always the operator who will look to acquire or utilise cheaper tonnage to offer lower-price cruises and, thus, employing older tonnage,” he said.
In the end, according to Shaerf, the cost of upgrades would dictate whether such work would be carried out or if the ship in question would be sold for recycling instead.
Value considerations
When it comes to installing clean technology, it is important to analyse the total cost of ownership throughout the vessel’s lifetime and to understand a technology’s payback period.
“Looking at OpEx, again, clean technology can ensure cruise [ship] owners and operators pay a lower cost for their carbon emissions within carbon taxes and levies such as the European Union Emissions Trading System,” said Piers Strong, business development manager – indirect sales, Silverstream Technologies.
Investment in fuel-saving technologies can also help maintain asset value through superior CII ratings, Strong said: “Plus, to access superior green financing, cruise [ship] owners and operators must provide a viable sustainability strategy for the vessel’s lifespan – of which clean technology can form an important part.”
Energy-saving devices are key technologies whose introduction will likely create an additional capital expenditure. However, these technologies and new fuels will be the licence to operate in the future, as the industry faces requirements and regulations to support the green energy transition, said Linden Coppell, vice president of sustainability and ESG, MSC Cruises. “For an industry such as ours, with a long lifespan of our key hardware assets, it means that the long-term benefits will far outweigh the extra short-term expenditure,” Coppell said. “The majority of energy efficiency technologies are expected to last for the entire lifespan of the vessel, but it is possible that certain retrofits might become necessary as technologies further progress. This may be the case for alternative fuels, where retrofits or modifications could allow for alternative fuels to be used.”
Maikel Arts, general manager of technical sales, cruise – marine projects business support at Wärtsilä, agrees. “The cost of doing nothing could lead the vessel to fall out of compliance early. This will mean an early write-off, which brings with it significant costs. It could also mean paying high carbon taxes and it could also have a huge impact on the reputation of the owner,” he told CruiseTimes. “Cruise ship owners should look for the right balance between what to put on board and what will be the most cost-effective way to extend the lifetime of the vessel, as well as remain compliant with regulation and in touch with customer expectations.”
Touching the challenge of additional space that the new fuels take, he said there were certain ways to mitigate the extra demand for space of new fuels. “For example, energy-efficient designs and smart itinerary planning, such as more frequent bunkering, can help cruise lines safeguard passenger space and earning capability of a ship.”
Proven solutions
Tom Strang, SVP of marine affairs at Carnival Corporation & plc, pondered whether or not some ships in the global cruise fleet should be recycled before they reach the age of 30, because of their inability to adapt to a changing world. As a group, Carnival removed 26 less-energy-efficient ships from its fleet during the pandemic.
“We’re also focused on reducing our fuel consumption because, regardless of any other factors, we can lower operating expenses by using less fuel,” said Strang. “That’s why Carnival Corporation has been transforming to a more fuel-efficient fleet and making large investments in energy-efficient technologies and energy-saving initiatives. For example, our Service Power Package, announced in 2022, covers 12 key project areas in HVAC, lighting, engine-room cooling, and auxiliaries. It delivers an average of 5 to 10 per cent fuel savings per ship. We’re also fitting our ships with things like air lubrication systems, which reduce hull resistance by roughly 5 per cent, as our ships more easily glide along on a cushion of air bubbles.”
The group is also doubling its efforts to optimise itineraries of its vessels to use less fuel while still delivering experiences that meet the expectations of passengers. “Plus, today, more than 60 per cent of our fleet can be plugged into electric power connections in ports to save fuel. All of these are proven solutions that deliver meaningful fuel savings and provide very favourable returns on investment,” Strang said.
The cruise industry had to take on a lot of debt during the pandemic. But the demand has bounced back strongly since operations resumed. This means the industry should have a platform to both reduce debt and keep investing in the green transition.
The more money its asset generates, the more it is worth, and the more incentive there is for its owner to upgrade and maintain it. At least to some extent, the question of whether cruise ships will be recycled before the age of 30 will depend on the profitability of the industry as a whole.
