Why are shipping companies looking at alternate fuels for ocean voyages?

Next time you plan your cruise trip to your favourite destination, consider taking a plane instead.

Even if you’re on the most fuel-efficient cruise ship, you’ll still be responsible for one kilogram of CO2 emissions for every four kilometres travelled. This is considerably higher than the carbon intensity of air travel, which ranges from 10 to 130 grams of CO2 per passenger per kilometre.

Now take into account the much wider impact of maritime shipping, which carries 80 percent of world trade through cargo ships and oil tankers, and you get to the source of roughly three percent of greenhouse gas emissions yearly – a major cause of global warming and climate change.

No wonder shipping companies are increasingly shifting to green fuels in line with the industry-wide goal of achieving at least 5-10 percent uptake of zero or near-zero greenhouse gas emission energy sources by 2030.

Wonder fuels

Among the multiple fuels and technologies being considered, green methanol and green ammonia are seen as promising options for achieving the decarbonisation goals set forth by the International Marine Organization (IMO), a UN agency responsible for regulating international shipping.

However, “large uncertainties” exist around the availability of green methanol and green ammonia, which shipowners and operators have highlighted as obstacles to investment in zero-emission ships.

“Given the urgency of the maritime industry to decarbonise and reach its interim 2030 targets, there is no time to delay the establishment of zero-emission bunkering at ports, particularly if the industry is to maximise the opportunities brought about by shipping’s fuel transition,” says a recent report by the Global Maritime Forum and Rocky Mountain Institute (RMI).

Bunker fuels—including high–sulphur oil, low–sulphur oil, and diesel oil—are pumped into ship bunkers to run engines. Valued at $109.6 billion in 2020, the global bunker fuel market is projected to reach $164.9 billion by 2030.

While the bunkering ecosystem traditionally responds to customer demand, delivering on the IMO targets is likely to require proactive collaboration between the first movers on both the supply and demand sides of the zero-emission fuel equation, the report says.

Green ammonia is produced using hydrogen from renewable electricity-powered electrolysis and nitrogen, using very low to zero production emissions. Similarly, green methanol is also produced with very low to zero production emissions.

Both fuels are considered promising options for achieving maritime decarbonisation goals.

What’s missing, then?

However, question marks hang over the source of these fuels, whether there will be enough of these fuels, what their full cost will be, and what must be done in time to ensure their availability by 2030 to meet the fuel uptake targets.

The report says fuel supply dynamics will change dramatically as the maritime industry decarbonises.

The economics of green ammonia and methanol production and transport, which the report assesses at great length, suggests there will be “extensive trade” in these fuels, linking key ports with faraway, low-cost production regions.

While the cost of transporting ammonia and methanol to ports is relatively immaterial, with even the longest possible routes adding no more than 15 percent to the delivered cost of the fuel, production costs for green ammonia and methanol vary significantly between regions.

Areas with good renewable energy resources, low capital costs, and access to hydrogen production support mechanisms will be able to produce green ammonia and methanol “several times cheaper” than other regions.

Moreover, policy support from regulatory authorities for green shipping fuels has the potential to “significantly impact” a country or region’s position in the burgeoning hydrogen economy.

The study shows the future of the marine industry entails global green ammonia trade, with long-distance transport of the fuel to key bunkering hubs from projects in low-cost production regions, including the United States, South America, Australia and Sub-Saharan Africa.

Going green

The report says green ammonia from the US can benefit from the tax credit package associated with the Inflation Reduction Act (IRA), a US federal law passed in 2022. Made-in-US green ammonia will be “particularly sought after” as the tax break will make it “most cost-competitive” globally by a considerable margin.

“Federal incentives in the Inflation Reduction Act have made the United States one of the most competitive regions in the world for green fuel production,” said Aparajit Pandey, principal and shipping decarbonisation lead at RMI.

“Smaller ports with excellent renewable resources, including ports in the Global South, can build cost-competitive hydrogen production facilities and participate in the global bunker market.”

The report says fuel producers and suppliers should develop green methanol projects, especially in locations with favourable conditions for low-cost hydrogen production in line with the maritime industry’s projected demand for green fuel.

At the same time, ports and other players in the bunkering ecosystem should work with shipping companies to develop green shipping corridors and coordinate the scaling up of bunkering capacity by delivering zero-emission vessel orders.

As for shipowners and operators, the report recommends they should accelerate the deployment of zero-emission vessels by placing vessel orders and sending clear fuel demand signals. Their proactive approach will, in turn, build confidence in zero-emission bunkering infrastructure investments.

“Shipowners and operators should also consider opportunities to increase ammonia and methanol tanker capacity,” it says, adding that investments in methanol and ammonia tankers need to be made in the next couple of years given the multi-year lead times for vessel construction.