Dual-fuel retrofitting cost shouldn’t exceed 25 pct of ship’s newbuild price

The retrofitting cost of an existing ship fitted with a two-stroke engine to a dual-fuel engine should not exceed 25 percent of the ship’s newbuilding cost, according to an assessment from DNV and MAN Energy Solutions.

The duo carried out an analysis of how retrofitting the existing maritime fleet to dual-fuel engines capable of running on sustainable fuels such as ammonia or methanol can contribute to the industry’s decarbonization goals.

The examination shows that the most significant hurdle in achieving maritime greenhouse gas (GHG) reductions lies with the existing merchant fleet, comprising approximately 55,000 ships equipped with two-stroke engines and 30,000 ships powered by four-stroke engines.

“Apart from efficiency improvements and the use of biofuels, retrofitting is another option for the existing fleet to achieving decarbonization targets,” says DNV’s Business Development Manager Christos Chryssakis. “However, there is no requirement for retrofitting so the future timeline for achieving this is not clear.” 

At present, the most effective method of reducing emissions within the existing fleet involves utilizing sustainable biofuels to power single-fuel engines. Various biofuels, including FAME (Fatty Acid Methyl Ester) and HVO (Hydrogenated Vegetable Oil), possess “drop-in” characteristics, enabling them to be seamlessly blended with conventional fossil fuels. This approach holds great appeal for shipowners as it offers a flexible pathway to decarbonization without necessitating significant capital investments.

However, a number of key challenges remain with biofuels. Although 2022 was a record-breaking year for the consumption of biofuels, this still accounted for just 0.1% of the maritime energy mix.  

“Demand for biofuels is high from other industries, and supply is limited,” says Chryssakis. “This means that the maritime industry may struggle to acquire as much biofuel as it needs and that prices will be high. Therefore, it currently seems quite unlikely that biofuels will be a magic bullet for decarbonizing the entire existing maritime fleet.” 

Dual-fuel conversions have reduced emissions by 15–20% in energy carriers, using fuels like LNG and LPG. To meet decarbonization targets, conversions must now prioritize zero-emission fuels such as green ammonia, methanol, and e-fuels.

The key retrofitting requirements for existing ships equipped with two-stroke engines. are electronically controlled engines, a bore size of at least 50 centimeters, and a sea trial conducted after January 1, 2015.

According to DNV, it has been determined that ships with a minimum newbuild cost of around USD 50 million are considered suitable candidates for retrofitting. Vessels falling within this criterion include tankers above 50,000 deadweight tons (DWT), bulkers above 160,000 DWT, and containerships above 7,000 twenty-foot equivalent units (TEUs), among others. However, it should be noted that in certain cases, such as for ships transitioning to methanol, retrofitting costs can be lower. Additionally, for four-stroke engines, ships with large bore sizes that underwent a sea trial 8 to 15 years ago are deemed the best fit for dual-fuel retrofitting.

Chryssakis explained that less than 10% of the existing global merchant fleet can be considered as theoretical candidates for retrofitting. The challenges of high costs and uncertainties have hindered the widespread adoption of retrofitting thus far. Nevertheless, industry insiders anticipate a shift in this trend over the next five to ten years, particularly after 2030, when regulations are expected to exert greater pressure. That being said, accurately predicting the number of retrofits that will ultimately materialize remains challenging.

Some of the IMO’s regulations are standing in the way of a swift, large-scale dual-fuel retrofitting of the global fleet, DNV and MAN ES found.

Of most concern to advocates of retrofitting, the IMO currently demands that a parent engine test of exactly the same electronically controlled engine type is required for a dual-fuel conversion to be NOx compliant. However, relatively new engine technologies such as methanol and ammonia are not available for all bore sizes, which means that a parent test engine is often unavailable for some desired retrofits to dual-fuel engines.  

In addition, certain older engine models, such as those running on heavy fuel oil (HFO), are not made for newbuilds anymore. This means that a newbuild parent engine is not available for testing in cases where a shipowner wishes to convert a HFO engine to dual fuel, thus making retrofitting extremely difficult under current IMO rules. Unless this regulation is amended, or new guidelines are developed, the pace of retrofitting will be significantly hindered, the duo estimates.  

Large-scale retrofitting faces hurdles including limited shipyard capacity, project complexities, cost uncertainties, and higher expenses for alternative fuels.

“The cost of fuels like ammonia and methanol presents an issue to shipowners wishing to reduce GHG emissions while also maintaining a profit,” says Chryssakis.

“The price of these kinds of fuels is currently much higher than conventional marine fuels and shipowners will need to ensure that their charterers will be willing to cover the increased cost of fuels before committing large amounts of CAPEX to retrofitting projects.”  

The expected introduction of emissions trading schemes (ETS) by the EU in 2024 and future carbon pricing initiatives by the IMO aim to address the high cost disparity between alternative and traditional fuels. These measures have the potential to make dual-fuel conversions financially attractive in the long run. Additionally, shipowners require assurance that scalable infrastructure, including ports and bunkering facilities, will be developed for the fuels they are retrofitting their engines to. This necessitates significant investment from ports, private energy suppliers, and governments. Regulatory frameworks like FuelEU Maritime and potential future IMO standards can encourage higher levels of investment in low-carbon fuels.

Successfully overcoming all of these and not encountered, upcoming issues will require time and collaboration between a range of stakeholders.  

“Shipyard capacities need to be built up and capabilities developed so that retrofitting can be done in a practical and cost-efficient way,” says Chryssakis. “Engine manufacturers need time and money to develop the most optimal dual-fuel solutions. Classification societies need as much information as possible to develop suitable frameworks for dual-fuel conversions so that ships continue to operate to the highest safety standards.”  

All of this will require a solid legal framework and support from governments, the IMO and other regulatory bodies. Crucially, the maritime industry will also need the support from financial institutions so that the required amount of capital is made available to take on this monumental task. A number of green funding schemes, such as the Poseidon Principles, are already in place which should encourage investment in dual-fuel retrofitting projects.  

Dual-fuel conversion is a complicated and challenging task. However, most stakeholders now agree that successfully achieving this goal is crucial if the maritime industry is serious about achieving its decarbonization goals.