By Adrian Tolson, Director, Lead, BLUE Insight
Special to The Digest
BLUE Insight’s Low Carbon Shipping Fuels and Energy Guide 2020 is a market first assessment of the leading low carbon marine fuels with potential to replace fossil fuels as the marine fuel of the future and analyses the companies, the R&D projects and collaborations, producing and supplying these fuels. We look at, amongst other criteria, the differing investment requirements, both shoreside onboard, potential price points, differing methods of production and overall applicability to international shipping.
The International Maritime Organisation’s (IMO) Greenhouse Gas (GHG) and CO2 reduction policies actually require a greater reduction than first thought, when viewed on a vessel by vessel basis. The IMO’s GHG policy aims to reduce shipping’s carbon intensity by at least 40% by 2030 and 70% by 2050, in comparison to a 2008 baseline. It also aims to reduce shipping’s overall GHG emissions by 50% – again against 2008 levels – with the aim of phasing them out completely, to make shipping a zero-emission sector.
The volume of goods shipped globally has doubled since 1995, and will continue to grow – and so – although impacted in the short term by events during 2020 – the total emissions of international shipping will grow. While this will be partially alleviated by increases in operational and technical efficiencies, the actual requirement is estimated by University Maritime Advisory Services (UMAS) to be 85% CO2 reduction per vessel by 2050.
The low or zero carbon shipping fuels and energy sources of the future will therefore require the potential to deliver individual vessels up to an 85% and in some cases a 100% reduction in CO2 emissions. If this seems daunting, the Guide does provide some glimmer of optimism; a number of fuels explored reduce CO2 by at least 85% at least as the point of combustion.
To achieve the IMO’s targets, the shipping industry requires astronomical investment and careful planning. According to UMAS, a capital investment of between US$1.4 and US$1.9 trillion will be required. In addition, the fuels of the future will need to replace the energy generated by more than 5 million barrels of fossil fuel per day or 300 million tonnes per annum – so any solutions need to be scalable. Moreover, none of the new fuels and energy used should inhibit society’s ability to produce food or require carbon-intense processing to produce. To add to the mix, much of the capital and infrastructure needed to meet the IMO’s target of reducing GHG emissions, requires land-based investments and developments that are largely out of the control of shipping itself. It’s a tall order, but there’s good reason – there is no Planet B.
The building of infrastructure will require coordination from across the supply chain. For the last 70 years, the global marine fuel industry has invested, developed, and maintained the same infrastructure used to produce, refine, transport and supply the same commoditised marine fuel products. However, with a change in fuels, comes the potential for a change of infrastructure, that requires collaboration and coordination along the supply chain. Shipowners don’t want to have vessels built to run on an alternative fuel with no access to that fuel, and suppliers of alternative fuels need the demand to be there.
Time is of the essence. UNCTAD reported in 2019 that the average age of a commercial vessel was nearly 21 years, making the requirement to find a low carbon propulsion solution for the marine industry even more pressing. To achieve the IMO’s reduction target, shipowners need to start placing orders for vessels that will operate on low carbon fuel to be sailing by 2029.
The options are plentiful. The BLUE Insight Guide covers 11 different fuels or technologies, all with advantages and disadvantages for varying sectors, these are:
- Dimethyl Ether (DME)
- Renewable Crude
- Synthetic LNG
- Fuel Cells
Drop-in fuels will provide a cheaper and potentially easier option than fuels requiring more substantive adaptations to the supply chain of the vessel itself. Drop-in fuels have the potential to mitigate the infrastructure issue. These are fuels that can utilise existing storage, transport and bunkering infrastructure and vessel engines without requiring modification. Nominally these fuels can also be used as a blend with other fuels. The next stages of LNG, bio and synthetic, alongside biofuels, are accepted as direct drop-in fuels. These fuels, therefore, have an advantage over other alternative fuels due to the lower capital expenditure required to integrate them into the marine fuel market.
Companies have already begun using drop-in fuels or blending them with fossil fuels. For example, the Finnish company Gasum offers a marine bio-LNG and LNG fuel mix to its customers, and the Dutch company GoodFuels supplies drop-in HFO and MGO equivalent fuels that can be blended with VLSFO or MGO.
Shipowners should spread the risk of unreliable availability by using dual-fuel engines. One recent development that will support the challenge facing shipping as it tackles decarbonisation, is the development of the two-stroke dual-fuel engine; capable of running on two different fuels, normally LNG and VLSFO, and effectively mitigating the risk of the, currently unknown, eventual winners in the race to be the marine fuel of the future.
Carbon taxes and stakeholder pressure will have a greater effect on fuel choice than overall cost. Traditionally, marine energy, or bunker fuel as it’s more commonly known, has been treated as a commodity and the focus for shipping has been in securing the lowest possible price for fuel. This remains the largely the same in 2020, albeit with less prevalent availability in some ports and more variance in fuels types impacting price, but jump forward 10 years and the question of which types of lower carbon fuels and energy we see in shipping will be driven by pressure from charterers, shippers, consumers and politicians. These pressures will create different priorities for shipping. The aim to minimise cost will be offset by two factors; that the cost of shipping products does not generally represent a major component of the final price of that product, and an increasing willingness to pay for a higher cost fuels that meet GHG targets and sustainability criteria.
The use of CO2 in fuels needs to be defined and regulated. A number of new lower carbon fuels use CO2 in their production. CO2 can be sourced in a number of ways and the methods, origin and use of this CO2 can be a contentious subject. Regulations are needed that apply to both the use of recycled CO2, produced by industry and captured at point source, and biogenic CO2, part of the natural carbon cycle. Direct air capture, taking CO2 from the atmosphere, is in its infancy and is expected at first to be an expensive process, but one whose costs will decrease with economies of scale and developments in technology.
It is not a race for the silver bullet, rather the race for multiple silver bullets for individual shipping sectors. It is accepted across the industry that there will no longer be a single fuel for the marine industry, as differing sectors have different fuel, space and energy requirements making certain fuels better suited to them than others.
The short sea ferry sector, for example, has started to see the advantages of battery power and electrification. With frequent port calls and often short voyages, battery power is ideally suited to propulsion for ferries. Companies such as Canada-headquartered Sterling PBES have installed batteries on a number of Ro-Pax and passenger ferries operating effectively and safely in Scandinavia. On the other hand, for a large ocean container ship a drop-in biofuel has proven an immediate low carbon solution for the likes of tanker giant Stena Bulk. Ammonia – supported by shipping decarbonisation experts UMAS as the most viable marine fuel of the future given its prevalence, scalability and minimal infrastructural costs – and methanol pose other potential options.
Critically, the companies, projects and collaborations in the low carbon marine fuel race are not the traditional bunker suppliers or producers of the past. With the exception of one or two major oil companies, we discovered that companies with minimal marine fuel experience are aiming to occupy the space of bunker suppliers and producers of the future. This may change of course, and we would expect some mergers and acquisitions of some of the organisations in the Guide by more traditional marine fuel suppliers and traders. Some of these are small companies that are just beginning their journeys, such as Denmark based Kvasir Technologies, a company researching and developing a one-step process that turns biomass, primarily lignin, into a second-generation biofuel. Its work is promising enough to have led them to have signed a collaborative agreement with A/S Norden, the Danish shipowner.
We also see that some major shipowners have begun researching into their potential future fuel options. One such shipowner is Compagnie Maritime Belge (CMB), which, through a number of ongoing projects and joint ventures, is researching into the use of hydrogen as a marine fuel. CMB will work along the supply chain with companies producing hydrogen to ensure they have access to the zero-carbon hydrogen, green hydrogen. Other ship owning companies have joined coalitions to share knowledge and resources. For example, ship owning giant Maersk and Ro-Ro company Wallenius Wilhelmsen are part of the LEO coalition, alongside stakeholders from across the supply chain, researching the viability of a lignin-ethanol biofuel.
So, what can you do now? Shipping has more or less completed what is comparatively a simple fuel transition to low sulphur fuels in 2020, where some have benefited more than others (those investing in scrubbers, for example have been hit by the current low spread between VLSFO and HFO). Decarbonising the shipping industry is going to be a much more complex, but necessary change.
The BLUE Insight Low Carbon Shipping Fuels and Energy Guide 2020 is the first independent and impartial analysis of the future fuel options for the marine industry and its varying sectors, allowing for the market players to establish their own opinion. The Guide gives in depth insight into the companies on the forefront of shipping’s decarbonisation push, introducing the shipping, fuel and energy industries to the bunker suppliers of the future.