Shipping industry confronted with a complex mix of future fuels Ship’s crew

By Nathaniel Bullard (Bloomberg) —

International shipping is a classic “hard to beat” sector. Container ships, bulk carriers for ore, fuel, and grain, and large passenger cars are expensive to build, last for decades, and have historically gained efficiency by becoming larger. More than 95% of today’s ships are fueled by petroleum products and powered by diesel engines that have been optimized for their specific purposes. They ship around 90% of world trade.

While emissions can be in the global energy sector just before the climax, international ship emissions show no signs of doing the same. According to the International Energy Agency shipping emissions have increased by almost a third this century. With more international trade and more inputs and finished products being transported, emissions from shipping will increase as a function of movement. Shipping changes are difficult.

But changes are also necessary. The largest ships have used the same fuels for decades. These fuels, collectively referred to as “bunkers,” are the residual results of refining oil for other fuels and products. Bunker is cheaper than other fuels, but it’s also literally heavier (some varieties need to be heated to move through a fuel system), and it’s certainly bad for the environment. However, bunker fuel is high in carbon and inherently loaded with other pollutants such as mercury and sulfur new regulation severely restricted the latter.

A new industry study shows how shipowners think about their own future, and the answers are revealing. A joint study by the Global Maritime Forum, the Global Center for Maritime Decarbonisation and the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping highlights steps being taken today and suggests ways the industry could transform.

The key takeaway is that while heating oil is the undisputed industry standard today, shippers will not see a standardized fuel choice until mid-century. A range of fuels, from liquefied natural gas to methane to ammonia, are all considered to be more or less equally viable at scale. Some other fuels such as hydrogen could play a role but are likely to be niche. Nuclear power, already used for military applications, could play a role, but probably not a big one.

Another key takeaway is that industry’s decarbonization efforts today are all about efficiency – achieving the same activity with less conventional fuel. These measures include activities such as routing ships for better weather, improving hull and propeller efficiency, and improving engine room operations. All good, but efficiency gains don’t change the fuels or the emissions from their combustion.

More innovations are needed here: low-carbon fuels (like biodiesel and ammonia produced with renewable electricity) and alternative energy sources (like electricity produced on ships by wind or solar energy). The experience of the industry so far has been mixed in this regard.

Half of the shipping companies in the industry study have used some form of low-carbon fuel, mostly in early pilot phases. Only 35% had no adoption of low carbon fuels at all. However, only 4% of companies had tried alternative energy sources, with half planning to do so (but not yet testing) and more than a third having not implemented it at all.

A final result is important. Shipping is a regulated global industry, and its owners and operators are hardly unaware of the need for significant decarbonization. The study unsurprisingly concludes that the biggest single factor driving shipping decarbonization will be the demands that regulators place on the industry.

Nevertheless, it will be shipowners and operators who determine the course. China, Korea and Japan dominate shipbuilding, with companies like Daewoo, Samsung, Hyundai and Mitsubishi maintaining their global reach. Decisions made by one of these highly competitive companies would force others to follow suit. Similarly, ship operators like Maersk, MSC or Cosco could use their leverage to make fuel decisions where their competitors are catching up.

Yes, regulations and emissions standards will be essential, but corporate-level action will most likely drive the marine industry’s complex future fuel mix.

Nat Bullard is a Senior Contributor at BloombergNEF and writes the Sparklines column for Bloomberg Green. He advises early-stage climate technology companies and climate investors.

© 2023 Bloomberg LP

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