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Highlights

MOL aims to develop a supply chain for synthetic methane usage

MOL to use LSFO as main marine fuel choice for IMO 2020

Product tanker rates underpinned by strong demand for transportation of gasoil due to IMO 2020

Singapore — Japan's Mitsui O.S.K. Lines, Ltd. said it aims to introduce synthetic methane, or methanation fuel, for ships as impending environmental rules in international shipping including the International Maritime Organization's greenhouse gas emission cuts targets loom.

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Synthetic methane is generated by methanation technology that combines CO2 with renewable energy-derived hydrogen.

To curb its emissions further, MOL has recently joined the Carbon Capture & Reuse Study Group, or CCR, and launched the "Cross-industrial Working Group Related to Zero Emission Alternative Ship Fuels," it said in a statement Monday.

The working group aims to reduce carbon dioxide emissions in international shipping's value chains by using synthetic methane, or methanation fuel, as an alternative to fossil fuel, the current mainstream fuel for merchant vessels, it said.

MOL will engage in the study and promotion of the fuel in cooperation with other industries, companies and government agencies, it added.

This comes after the IMO, in April 2018, laid out its strategy on GHG emissions, aiming to cut the shipping industry's total GHG emissions by at least 50% from 2008 levels by 2050, and to reduce CO2 emissions per transport work by at least 40% by 2030.

Meanwhile, MOL is also well advanced in its preparations for other international environmental rules such as the IMO 2020 sulfur limit rule for marine fuels as well as the ballast water management convention.

To meet compliance with the IMO 2020 rule, MOL's "basic policy" is to use low-sulfur fuel oil while it also plans to install SOx scrubbers on about 50 vessels, mainly VLCC and capesize bulkers, it said in May.

While LSFO will be the company's chief marine fuel choice by 2020, it is also plans to use other alternative fuels--LNG and methanol--for bunkering, it had said at the time.

The IMO's Ballast Water Management Convention came into force on September 8, 2017, with the aim of mitigating that transfer.

It requires ballast water treatment systems, or BWTS, to be fitted on ships during docking surveys between 2019 and 2024 to substantially eliminate organisms from transferring between marine ecosystems.

"We have already completed installation on 142 owned vessels [as of April 2019]," MOL said in May.

As of June 30, MOL and its consolidated subsidiaries had a total fleet capacity of 767 ships. This includes dry bulkers, tankers, LNG carriers, car carriers, containerships, ferries & coastal RoRo ships, passenger ships, and others vessels including coastal ships.

FUTURE PROSPECTS

In its first quarter results announcement last week, the company said that its HSFO bunker fuel bill, on an average, rose by about 0.7% year on year to $441/mt in the three months ended June 30.

For the fiscal year ending March 2020, the company forecasts an operating profit of $238.9 million based on a bunker price of $450/mt for the second quarter of the current fiscal and a price of $420/mt for the second half of the fiscal year.

Looking ahead at the dry bulk market, MOL expects charter rates to be better than in the first quarter, especially on the capesize bulker market, because some vessels are expected to be temporarily taken off the market in the second half for dry-docking to install scrubbers for compliance with the global sulfur limit regulation from 2020, it said during its financial results announcement.

As for the VLCC market, looking at the vessel demand side, although OPEC has agreed to extend oil output cuts, an increase in procurement of alternatives such as shale oil from the Atlantic will lead to growth in ton-mile demand itself and this is expected to have a positive impact on rates, it said.

Additionally, on the vessel supply side, although the number of newly built ships remains at a high level, increases in the installation of scrubbers and the scrapping of old vessels are expected, it said.

Consequently, although the adjustment phase will continue during the second quarter, rates are expected to firm up from the second half, MOL said.

"We expect that the product tanker rates will rise mainly due to an increase in demand for the transportation of gas oil as a result of the introduction of tightened SOx regulations and an increase in demand for heating oil for the winter in addition to a letup in the delivery of new vessels," it said.

-- Surabhi Sahu, surabhi.sahu@spglobal.com

-- Edited by Debiprasad Nayak, debiprasad.nayak@spglobal.com