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LNG’s value downgraded in global marine cargo decarbonization push

Alternative fuels panel debates the best route to cleaner container shipping operations
Aerial shot of the MS Tallink Megastar, the first LNG-powered ship in the fleet of Estonia-based shipping company Tallink. Its dual-fuel engines were built by Finland’s Wärtsilä Corp.  | Wärtsilä Corp.

It needs to be industry driven, and the industry needs to start driving it now. 

That’s the consensus of a panel debating the global maritime shipping sector’s progress on what will be an expensive and complex voyage to decarbonization.

And the role of liquefied natural gas (LNG) in accelerating that progress was a flashpoint in the panel discussion, which was organized in mid-May by shipping industry journal Lloyd’s List.

For Jacob Sterling, LNG’s role is negligible at best and counterproductive at worst.

“It is borderline greenwashing to call LNG a transition fuel towards the decarbonization of shipping,” A.P. Møller-Maersk’s (CPH:MAERSK-B) head of decarbonization, innovation and business development said in response to a question about LNG’s place in the hierarchy of alternatives to heavy marine fuel oil. “It’s being portrayed as a transition fuel, but a transition fuel towards what?”

Sterling questioned the long-term prudence of marine cargo carriers and ports investing heavily in expensive infrastructure for a fuel source that, when well-to-wake methane gas emission totals from production, supply and incomplete combustion are factored in, “is just marginally better than what we use today, and, at worst, … could be way worse than what we use today.”

He is not alone in dismissing LNG as a meaningful alternative fuel to heavy marine bunker oil for ocean carriers.

The International Transport Forum’s Navigating Towards Cleaner Maritime Shipping report concludes that neither LNG nor methanol, when produced from fossil fuels, delivers “significantly lower [greenhouse gas] emissions than conventional marine fuels.” 

But LNG produces almost no particulates, sulphur or nitrous oxide emissions and generates a third less carbon dioxide than marine diesel. It and the technology to use it to power deep-water freighters are also available now. That cannot be said for hydrogen and many other potential low-to-zero-carbon fuel options for the global marine cargo sector.

So regardless of its drawbacks, Roger Holm, president of marine power and executive vice-president at Wärtsilä Corp. (HEL:WRT1V), said, “LNG is still a step in the right direction. We all know it’s not the end solution, but the uptake of other alternative fuels today is still going to take quite some time.”

Wärtsilä, which is based in Finland, manufactures power sources for the marine and energy markets.

As noted in a previous BIV story (“Coming to Grips With the Great Green Shipping Challenge”: Issue 1622; November 30–December 6, 2020), Krishna Achuthanandam, Shell LNG’s marine LNG business development team lead, told an alternative fuels conference that, while Shell (NYSE:RDS.A) sees hydrogen as the long-term solution to decarbonizing shipping, LNG makes the most sense now as a bridge fuel en route to that goal.

Some major global shipping players in B.C. agree.

Vancouver-based Seaspan Corp., for example, has commissioned 10 new 15,000 20-foot-equivalent (TEU) container ships that will have dual-fuel LNG technology.

Bing Chen, president and CEO of Seaspan’s parent company, Atlas Corp. (NYSE:ATCO), said during the company’s 2021 first-quarter earnings call that the LNG ships order is part of the “strong commitment” of the world’s largest lessor of container ships to “ESG [environmental, social and governance] and our long history in innovative ship designs.”

The infrastructure for bunkering LNG is also further ahead than other shipping fuel alternatives, although, according to international company Danish Ship Finance, LNG is available at only 77 out of 1,800 major global marine cargo ports.

In the lead-up to complying with the International Maritime Organization’s (IMO) low-sulphur fuel regulations at the outset of 2020, Vancouver’s Teekay Shipping Ltd. (NYSE:TK), the world’s third-largest independent owner and operator of LNG carriers, chose to focus on switching to low-sulphur marine fuel rather than convert any of its ships to LNG propulsion.

Of the other leading fuel candidates for decarbonizing shipping, sooner than later, the Lloyd’s List panel agreed that methanol and ammonia have the biggest near-term upside.

But an underlying key to the decarbonization conundrum for ship owners is fuel flexibility, said Linda Sigrid Hammer, a principal consultant working in maritime advisory for DNV, a maritime industry risk-management company based in Norway.

“We think that the uncertainty related to future fuels can be managed by planning for fuel flexibility. And by installing dual-fuel engines, you have more flexibility to use different types of fuels. And it’s a matter of fuel availability. As we have already discussed here today, it will be a long time before we have available other types of fuel that can give any reduction in greenhouse gas emissions. So LNG is one of the few fuels that are available that can give an emission reduction today.”

Holm agreed that propulsion technology flexibility is critical, because “no one really knows exactly what the future fuel is. That’s a question we get a lot: ‘Tell me what’s the future fuel?’ And I think we honestly can’t say. I really don’t have the answer.”

But Holm added that methanol is a leading candidate because it is one of the easiest to start implementing now.

Vancouver’s Waterfront Shipping Co. (WFS), a subsidiary of Methanex Corp. (TSX:MX), the world’s largest producer and supplier of methanol, currently operates the world’s largest methanol tanker fleet.

As Ayça Yalcin, Methanex’s director of market development, pointed out in a previous BIV story, methanol is a clean-burning low-emission marine fuel that biodegrades rapidly in ocean water.

It also has the lowest carbon content and highest hydrogen content of any liquid fuel and can be produced from various sources, including black liquor from pulp and paper mills. The additional costs of installing methanol systems on ships are roughly one-third those of installing LNG systems.

However, building a fuel supply and infrastructure network for methanol faces a classic chicken-and-egg challenge: there will be no major investment in supply or infrastructure if suppliers have no commitment from carriers to convert their ships to methanol, and there will be no major commitment to that conversion from carriers unless there are guarantees of a reliable and widespread supply of methanol.

Sterling said methanol and ammonia are both on Maersk’s candidate list for near-term decarbonization fuels.

“We have ships running on methanol today. So the journey is a little shorter on the technical side. Ammonia definitely is also a fuel that is on our candidate list, but it’s a lot further out. And I think that it is important that we acknowledge that there are a lot of challenges related to running a ship on ammonia that have not been solved yet.”

Hammer agreed. 

She said safety issues connected with the use of ammonia, which is extremely corrosive and toxic, need to be resolved before it can become a mainstream marine cargo transportation fuel.

While the panel members debated fuel alternatives and technologies, they agreed on two key points: action on ship fuel conversion needs to begin now, and the industry cannot rely on the IMO to clean up marine cargo transportation.

That initiative has to come from the industry, governments and shipping customers up and down the global supply chain.

In early June, the governments of Denmark, Norway and the United States, along with the Maersk McKinney Møller Center for Zero Carbon Shipping and the Global Maritime Forum, announced plans to lead a new zero-emission shipping mission.

The mission’s goals include ensuring that by 2030 at least 5% of the global deep-sea fleet will be capable of running on green ammonia, green methanol and other hydrogen-based zero-emission fuels.

A group of leading international shipping organizations led by the World Shipping Council is also calling on the IMO to initiate discussions on instituting “market-based measures” that would lead to carbon-pricing in the shipping industry and close the cost gap between low-sulphur heavy marine oil and low-to-no carbon fuel alternatives.

Maersk is pushing for a US$150-per-tonne carbon tax on marine fuels to close that gap.

Swire Shipping, a multinational shipping services brand operated by the China Navigation Co. (CNC), has also called for a universal greenhouse gas levy in the global marine cargo sector. CNC opened its North American headquarters in Vancouver in August 2018.

Sterling said more Maersk customers are now willing to pay a premium to have their goods shipped carbon-neutral.

That appetite, which is rooted in ESG’s growing market value, underscores the willingness in the global cargo supply chain to change and to pay for that change.

Sterling said the shipping industry “cannot depend on the IMO to set the pace for this; we need to go much faster than what the IMO suggests, and what the IMO can reach consensus on.

“… if we decarbonize too slowly, the whole concept of global trade, where you produce in one end of the world and consume in the other end of the world, might be challenged by consumers in five, 10, 15 years’ time. Because if we just try to use this as a compliance thing, where we go for meeting the minimum standards set out by the IMO, we might lose the game altogether.” •

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