Monitoring fuel consumption continues to become more important!

In response to my last post, Daniel Kane of Propulsion Dynamics sent me the following information;

MEPC 61st Agenda 5 MEPC 61/INF.213 August 2010
REDUCTION OF GHG EMISSIONS FROM SHIPS - Impact Assessment of possible MBM.
12.96 The Ship Efficiency and Credit Trading proposal would require ships (existing as well as new) to regularly repeat sea-trials to re-assess their EEDI values. Such repeated sea-trials could be performed back-to-back with dry dockings where the hull performance has been optimized with re-coating, etc.

IMO MEPC 61/INF.18 Agenda item #5 July 23, 2010 REDUCTION OF GHG EMISSIONS FROM SHIPS Marginal Abatement Costs and cost-effectiveness of energy efficiency measures.
5.66 “By reducing the frictional resistance of a hull, consumption of bunker fuel and thus emissions of CO2 can be reduced; this is the often the outcome of a hull resistance management program. One way of reducing the frictional resistance is to enhance the smoothness of a hull by means of coatings that prevent/reduce fouling. In addition, the hull can be cleaned periodically.

I want to thank Daniel for the information! You should check out the services that Propulsion Dynamics can provide and feel free to contact Daniel at dkane@propulsiondynamics.com with any questions.

This information further reinforces the value of automatically collected data that can be used to help operators identify what you might call “tipping points”. What I mean by tipping points is simple – gradual changes make very little difference when looked at individually; however, accumulated over time, they eventually reach a point where to let the conditions continue to exist may be more problematic (i.e. costly) than correcting them now. This is true of hull fouling - and It is also true of a number of other factors associated with a ships use of fuel that together often represent a significant waste of energy and resources.

MFM solutions can capture valuable data that can be used by companies like Propulsion Dynamics as an input for further analysis. By monitoring fuel consumption on a continuous basis you develop a history that can be looked at in varying degrees of granularity. Gradual changes are recorded on every voyage and reports, to provide daily, weekly, monthly or other comparisons, can provide valuable insight and facilitate more timely decision making. Timely decisions make the most efficient use of resources – be they people, equipment, or money.

Having good information is key to making good business decisions and MFM solutions are key to having good information about your vessels fuel consumption and operating habits.

What's up with fuel prices?

Diesel prices continue to trend upward. From July 19th of this year through today, the price has fluctuated significantly. Looking at this period (based on Houston MDO prices as reported by bunkerworld.com) the price per ton was $651.50 on July 19th and its $691.50 today. That’s a $40/ton spread over 60 days with a low during that period of $644.00 and a high of $692.50. The trend now appears to be upward but prices for the last six months have been significnatly lower than the previous 6 months and the DOE does not project a significant increase in 2011. So, given the DOE's council, we may not see much of an increase during the next year!

Maybe I’ve just lost faith in what the government says; but what appears to be obvious to me is that the lower prices we see today will be replaced by higher prices, perhaps significantly higher prices, when economic conditions begin to improve. Prices, normally driven by supply and demand, have increased modestly over the last 6-months - in a stagnant economy! We’ve also seen several other things that promise to have an impact on prices; tighter environmental regulations (imposing higher priced low and ultra-low sulfur fuels), Mid-East instability (that could erupt at any minute and change the game dramatically), and the BP oil disaster (which will increase the cost of drilling for everyone).

It’s a real possibility that prices will begin a steeper climb than the DOE projects once the economy starts to rebound. If so, marine operators may once again find themselves in the position they were in during the summer of 2008 - “needing” to look at Marine Fuel Management (MFM) ASAP. That’s good for the MFM vendors – but it can be bad for the operators who find themselves virtually backed into a corner with too little time, too little patience, and not much flexibility.

MFM solutions can help companies reduce fuel consumption and deliver a true ROI if they are selected and implemented properly; BUT, they are not one-size-fits-all! The process of selecting the right MFM solution begins by developing a well thought out understanding of your current situation – what information you have today, how you get it, and where the holes are. Then, by looking at your vessel’s operating profile, what information you need today, and when you need it; it’s possible to develop a clear picture of the solution that will work for your operation.

You may only need a bare bones system to receive the benefit you desire; or, you may need a more comprehensive solution – but you don’t need to make a mistake. Give yourself some time to look into this issue while fuel prices are reasonable. This allows you to have an action plan in place and thought out, so when prices do go up (and they will) you can be ahead of the curve having already identified the solution that delivers the most benefit and positions your company with a competitive advantage.

In the mean time, a properly implemented system could begin delivering a savings now – and who doesn’t need additional margin in today’s marine market!

Having good information is key to making good business decisions and MFM solutions are key to having good information about your vessels fuel consumption and operating habits.

Reasons for MFM: Environmental Reporting

This is the final post in the series Reasons to Implement Marine Fuel Management. It is also one of the longest but there is valuable information that all marine operators, regardless of size or type of vessel, should note.

Environmental reporting as a reason for MFM may sound like a stretch to some – especially the skeptical; but, if you follow the news, you may be familiar with the EPA, IMO, the impact of ECAs, possible cap and trade legislation… and on and on and on. You cannot dispute that environmental issues are and will continue to be, more onerous every day and, we all know that with increased regulation you always, ALWAYS have increased reporting. Nor can you dispute the correlation between reducing air pollution and reducing fuel consumption.

What is also obvious is that this increase in regulation comes at a "cost" to the marine industry - in fact, all industries using fossil fuel. A variety of approaches have been proposed, but they all seem to stem from an economic model that is based on imposing a financial penalty for pollution from the use of fossil fuel in an effort to encourage users to find ways to reduce fuel use or convert to alternative fuels. With the addition of “caps” on emissions, the cap and trade approach limits the total amount of emissions permitted and creates an additional monetary incentive to reduce consumption by allowing operators to sell or trade emissions credits earned by reducing pollution.

Of the various carbon tax or cap and trade regulations being considered there is talk of two different ways to implement them; upstream models or downstream models. The following is taken from page 12 of the 2008 CBO Study on “Policy Options for Reducing CO2 Emissions”.

"“Administering an “upstream” tax or cap-and-trade program for CO2 emissions would involve taxing or regulating the suppliers of fossil fuels—such as coal producers, petroleum refiners, and natural gas processors. Compared with a “downstream” design, which would tax or regulate users of fossil fuels, an upstream approach would have two administrative advantages. It would involve regulating a limited number of entities, and it would not require firms to monitor actual emissions. Rather, each firm’s tax payment or allowance requirement could be based on the carbon content of its fuel and the amount it sold.”" The full study can be found at http://www.cbo.gov/ftpdocs/89xx/doc8934/02-12-Carbon.pdf

The jury is still out as to how this will impact various groups of marine operators. There will likely need to be different approaches for large blue water ships vs. small brown water boats and several categories in between. The IMO has yet to decide whether it should opt for a cap-and-trade system, in which ship-owners trade permits to emit carbon dioxide, or impose a levy, or a tax. It's obvious they will do something and whatever they do, it will cost!

The CBO appears to favor taxing the suppliers of fossil fuels rather than the users of fossil fuels. If this approach wins, every gallon/liter/ton of marine fuel will carry an additional tax (or penalty) on top of what promises to be ever increasing prices for fuel. If the other approach wins marine operators will be forced to pay a tax (or penalty) for emissions based on every gallon/liter/ton of marine fuel consumed.

If the price of fuel is increased to include a carbon tax it becomes more important to identify and implement strategies to conserve fuel – even if the cost of fuel is being passed through to the customer. The same is true if marine operators are forced to pay a carbon tax for what they consume. In these situations MFM can help automate this process and ensure accurate values are reported.

Not only does an MFM solution allow the user to accurately monitor and report fuel consumption, it also provides the granularity that is required to know how fuel is being used and where it is used. This last point, WHERE fuel is used, may be more important and have more value as different schemes for taxing pollution are implemented. Where can identify equipment (main engines, generators, boilers), or GPS location in order to facilitate reporting within geographic boundaries or zones, such as ECAs.

Each gallon of diesel fuel consumed puts 22.2 pounds of CO2 into the atmosphere. So let’s create an example scenario and assume we are looking at a tug operating with two 3000 hp diesel engines. For 75% of the time the engines are under 80% load. At 80% load the engines consume 140 GPH/engine. The remainder of the time it is at idle with consumption at 20 GPH/engine. Let’s further assume that the vessel is performing this work 75% of the time during a typical year and at dock in a cold iron scenario the remainder.

Under this scenario, the vessel would be working 6570 hours per year and consume 1,445,400 gallons of diesel fuel – which converts to over 16,000 tons of CO2.

U.S. Rep. John Dingell, has proposed a carbon (and fuel) tax with real bite: $10 per ton of carbon content, plus an additional 10 cents per gallon for gasoline and jet fuel. That would rise each year for five years to $50 a ton of carbon and 50 cents a gallon for gas and jet fuel (http://www.thedailygreen.com/living-green/definitions/carbon-tax). So far no specific proposal has been made for marine fuel but let’s assume it will be similar.

Using the above tugboat example there would be a carbon tax of
- $160,000 the first year escalating to
- $802,000 by the 5th year plus
- $144,500 fuel tax the first year up to
- $722,700 by the 5th year

That’s an additional $305,000 cost the first year escalating to $1,525,000 by the 5th year – ON TOP of the price of fuel!

Let’s say the price of fuel is $3.00/gallon. A fuel reduction strategy that produced even a modest 2% savings would deliver the following;

- $86,000 savings in fuel (first year)
- $2,890 savings in fuel tax (first year)
- $3,208 savings in carbon tax (first year)
- $92,098 total savings the first year

Assuming fuel prices remain constant for 5 years (unlikely) the same 2% reduction, the potential savings the 5th year are the following:

- $86,000 savings in fuel (fifth year)
- $14,454 savings in fuel tax (fifth year)
- $16,043 savings in carbon tax (fifth year)
- $116,497 total savings the fifth year

The ROI on this for the typical MFM solution is one year or less. With numbers like these, implementing MFM begins to make good economic sense. Without MFM this level of savings may be nearly impossible to identify or achieve.

Having good information is key to making good business decisions and MFM solutions are key to having good information about your vessels fuel consumption and operating habits.

Reasons for MFM: Monitor Fuel Reduction Strategies

This is the fifth post in the series on Reasons to Implement Marine Fuel Management.

Historically, fuel reduction is one of the main reasons companies implement a Marine Fuel Management solution. Starting in the early 2000s, some MFM vendors began to imply that by using their system a customer could see 10%-20% or more in fuel savings. Purchasers of these systems often found that their expectations were not met. I don’t believe any of the vendors making these claims were deliberately making false claims; the problem is that fuel reduction strategies for marine vessels are not a one-size-fits-all proposition. The type of vessel, the way it’s being operated, the type of work it is doing, and the conditions it is dealing with, all have a significant impact on what can be done to save fuel.

I worked with a tug company a few years ago that did coastal towing as well as ship docking. Line haul operations lend themselves quite nicely to fuel reduction strategies because there are long periods of uninterrupted operation. Harbor work, however, is more ad-hoc and less consistent requiring a different approach. It’s no surprise then, that this customer found the same techniques used with their coastal towing operation, did not work with their harbor tugs. What they did find, however, by monitoring fuel consumption data from the harbor tugs, were some “behaviors” that were wasting fuel.

The data (fuel consumption, lat/lon, speed, and engine rpm) showed that the tug would leave its dock, travel out to meet a ship, escort the ship to the ships berth; then, when the job was done, the tug would return to its dock. On the return trip to dock, under no time pressure, the tug was routinely traveling at top speed. After further evaluation it was determined that this was not necessary and by instructing the tug to slow down when there was no rush to get back, they were able to save a considerable amount of fuel without impacting business.

Fuel reduction strategies take many forms, like the one previously mentioned based on behavior modification, to the use of fuel additives or engine hardware, to different props, different tow configurations, hull coatings, and so on. However, it really doesn’t matter what your fuel reduction strategy is, without a way to accurately measure its effectiveness, you have no real understanding of how well it is working – or if it’s working at all.

Most companies use a manual system to account for fuel consumption. Depending on how the manual system is implemented there may be significant errors introduced. Some operators have told me the error could be as much as 2%-5%. Without MFM, a small incremental change in consumption of 1%-2%, whether it is positive or negative, is nearly undetectable. But, even if there is no error in the manual accounting system, the granularity of the information makes it less useful (perhaps even meaningless) for identifying areas where improvements are possible or for evaluating various optimization strategies.

The previous example would not have been easily identified based on a manual system. Without information of sufficient granularity to help you understand some of the details showing how fuel is being used and under what conditions, it may be impossible to identify areas where improvements are possible or implement strategies to correct such situations.

Even the simplest MFM solutions typically provide fuel consumption data on a per engine basis and most can also capture time, date, speed, engine RPM, and vessel location. With this information it’s possible to learn much about how various pieces of equipment are performing and how the vessel is being operated, identify hardware or best practices that work, propagate these throughout the fleet, monitor the results, and look for additional areas of improvement.

Sound familiar? This is essentially the Shewhart Cycle for continuous improvement; plan-do-check-act-repeat! The first step in this process, however, requires information that few operators have today without an MFM solution implemented on at least some vessels in their fleet. Almost every operating company can identify areas where improvements are possible if they have accurate information with the necessary granularity.

Having good information is key to making good business decisions and MFM solutions are key to having good information about your vessels fuel consumption and operating habits.