Contractual issues for methanol in the alternative and dual-fuel future

Scott Pilkington

Shipping’s need to decarbonise continues to drive orders for vessels featuring alternative and dual fuel capability, but established charter forms and terms are unlikely to be fully equipped to deal with the use of methanol. 
 

The alternative marine fuel, whose potential as a route to ship decarbonisation saw orders for new ‘methanol-ready’ ships overtake those set up for LNG in 2023, remains the subject of ambiguity where procurement, bunkering costs, product quality and onboard handling are concerned. These are fertile areas for future contractual disputes, suggesting that robust provisions need to be tailored to methanol's peculiarities to navigate uncertainties, and to allocate risks and costs clearly and comprehensively. 
 

Consider these scenarios and issues:
 

• Bunkering Delays: Limited methanol bunkering stations, and supply mainly being available by small ships could lead to extended waiting times. Who bears the delay time? Specific provisions for methanol bunkering defining acceptable waiting times, cost-sharing mechanisms for delays, and procedures for sourcing alternative fuels in case of unavailability would need to be considered.
 

• Methanol Quality Issues: Contaminated methanol could damage engines, necessitating repairs, and causing delays to charter service. When does off-hire commence during repairs or when seeking alternative fuels? Would time charterers be willing to warrant the quality of supplying an unfamiliar fuel and accept the risks of any fitness and off-specification issues? Clear quality and sampling/testing protocols and pre-bunkering inspections would need to be agreed and consequences for contaminated fuel, including off-hire periods and responsibility for repair costs would need to be allocated.
 

• Engine Switching Malfunctions: Dual-fuel engines might face issues switching between methanol and traditional fuels. Outlining off-hire events, repair procedures, and cost allocation during downtime if such malfunctions disrupt operations would ideally be addressed. 
 

• Performance: Speed and consumption disputes may arise if the vessel's performance deviates significantly from the agreed warranties in the charter. Having an initial trial period for methanol and dual-fuel use, and for switching between fuel types on a “without guarantee” basis may need to be considered before performance metrics are clear and binding figures can be agreed. Tolerances for “about” would need to be carefully defined.
 

• Off-hire and Safety Concerns: Off-hire and other disputes might arise if the vessel cannot operate safely with methanol as a dual fuel or if environmental regulations are breached. “Breakdowns” would usually be included as off-hire, but specific outlining of other methanol-related off-hire events may need to be considered.
 

• Incidents and accidents: Provision will need to be made allocating liabilities and responsibilities in the event of incidents or accidents related to methanol use including pollution risks, damage to third parties, and other liabilities arising from the adoption of methanol as a marine fuel.
 

• Crew Competency and Training: Specific provisions may need to be included in charters that require adequate training for crew members for methanol handling to enhance crew safety and wellbeing and to minimise legal risks associated with human error.
 

Given the likely propensity for disputes arising from the use of methanol as a relatively new alternative fuel, alternative dispute resolution agreements for claims related to technical issues, or performance may assist the parties to reach early settlement and avoid uncertain and drawn-out arbitration or litigation which is likely to be dependent on technical and expert evidence.

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