The IMO’s Energy Efficiency Index for Existing Ships or EEXI has not yet come into force, but its impact is already being felt throughout the industry. In the tanker sector, shipowners are beginning to recognize that EEXI poses significant challenges to the commercial, technical and safety aspects of their ships’ operations.
In simple terms, EEXI represents the application of the Energy Efficiency Design Index (EEDI) to existing vessels rather than newbuilds. However, since 70% of the current world tanker fleet was contracted before January 2013 and delivered before July 2015, these vessels do not have an EEDI value, so their EEXI will have to be estimated using the guidelines developed by the IMO.
Analysis by ABS suggests that nearly 7,000 tankers are likely to have to explore alternative compliance options to achieve their target EEXI values. Available options include a reduction in propulsion power known as engine power limitation (EPL) and, if this is not sufficient to meet the required target, these ships will have to consider retrofitting energy efficiency technologies (EETs).
Tankers contracted after January 1, 2013 and delivered after July 1, 2015 are already assigned an EEDI value, but of the nearly 1,800 ships for which data is available, ABS estimates that about 400 of these relatively young ships will not automatically meet the EEXI requirements. These vessels will also need to explore EEXI compliance options, most likely an EPL.
Although the impact of the reduction factors for all vessels is not known, in some cases the degree of compliance required is such that an EPL could create problems for the vessel to adhere to its contractual requirements; even young vessels may not be able to comply with the terms of the charterparty.
Since there is no data on the 70% of vessels without EEDI, we cannot know with certainty whether they will not comply with EEXI, but it seems likely that many of them will find it difficult.
The total impact on the fleet is difficult to quantify and some predictions are already being made about the number of scrapping likely to occur. In some cases, especially for older tankers, it may be that scrapping is the more cost-effective option rather than risk having a stranded asset that cannot be profitably marketed or made compliant in the next few years, even if it is technically feasible.
What is certain is that shipowners must understand the implications of an EPL and whether the investment in EETs will be profitable. The ability of a vessel to implement an EPL reduction and still operate at charter speed is a balancing act in terms of regulatory compliance and remaining commercially viable.
One problem for tanker operators could be that even relatively young vessels will have to compete with newer, more efficient vessels capable of operating at higher speeds. Being forced to significantly reduce operating speeds across the fleet may also mean lower utilization, which could result in less revenue for the operator.
In the case of long-term charter agreements, tanker owners may have to enter into renegotiations with their customers based on the speeds defined by the charter agreement. Considering also that an instruction from a charterer to accelerate could push the vessel into default, communication between charterer and owner will be more important than ever.
What is also clear is that owners and operators must sit down soon with ABS to study the operational profile of their fleet and assess what levels of EPL are safe and practical and whether additional EETs are needed.