Fuel of the future in shipping

Fuel of the future in shipping

In the decade that is ending, there have been many tipping points – new trends and technologies have emerged – from problems with climate change to electric vehicles and artificial intelligence.

In the coming new decade, these emerging trends can take shape and become a part of our life, changing it, new approaches can be found to solve the most pressing problems.

The intensification of the fight against climate change, the growth of production and cheaper energy from renewable sources, the development of transport powered by electricity (or alternative energy, including hydrogen) – all these pose a serious threat to fossil fuels. If many countries are already actively reducing the use of coal, the oil industry has not yet faced a threat, because a significant part of crude oil is used in petrochemicals. However, the fight against plastic may hit this market as well.

Stranded assets

Fossil fuels are already referred to as assets of dubious value, which can depreciate prematurely, for example, due to changes in regulation or a rapid decline in demand for them.

In 2019, over 600 investment firms called for the end of government fuel subsidies. This is an important part of the fight against global warming and more efficient consumption.

In November 2020, the European Investment Bank (EIB) announced it would end lending to companies operating in hydrocarbons, even gas, which is generally considered to be able to replace dirtier coal. The motivation is that it makes no sense to continue investing in assets with a useful life of 20–25 years, which will be replaced by new technologies and do not contribute to the achievement of climate and energy goals. Renewable sources will dominate the energy system of the future.

New ecology requirements, changes in the situation on the market for fuel grades

Thus, the era of hydrocarbons is gradually moving towards an end. But what will the next generation fuel be like? Ammonia and hydrogen are among the most likely candidates for replacing old fuel oil or diesel fuel.

The first half of 2020 was marked by a number of challenges for the shipping and related industries: on January 1, new ecologyrequirements of the international MARPOL convention came into force, following oil prices, the cost of marine fuels also decreased, and the pandemic had a significant impact on passenger and cargo transportation.

Today’s 2020 is unique in its kind for a variety of reasons. The beginning of 2020 can be safely called a period of challenges that significantly influenced the structure of sales and the capacity of the marine fuels market. New realities affected everyone – both shipowners and fuel suppliers, and the stability of the business largely depends on how efficiently the processes are built in companies.

But since the ecologyrequirements of MARPOL-2020 were announced long before they came into force, so all market participants had time to prepare for them. For shipowners to switch to low sulfur fuel or equip their fleet with scrubbers. For bunkering companies – to ensure the production and supply of marine fuel with a sulfur content of no more than 0.5%.

According to expert estimates, new ecologyrequirements will significantly change the structure of the marine fuel market. If earlier the share of dark oil products was about 70%, in the coming years it will decrease to about 15-20%.

Has the approach to doing business changed?

It is hardly possible to be mistaken in assuming that nowadays every leader is betting on improving business efficiency. This fully applies to shipowners as well. Market participants strive to improve logistics, save resources and take care of energy efficiency. In this regard, the new restrictions of MARPOL-2020 have become very indicative.

One of the possible strategic decisions for shipowners was the installation of scrubbers for cleaning exhaust gases – this allows the continued use of cheaper dark grades of fuel. At some point, this way even seemed the most attractive, because the price of scrubbers has dropped significantly. But the cost of equipment maintenance and expensive disposal of waste, as well as possible new restrictions on nitrogen compounds emissions, virtually nullify these savings in the long term. Therefore, many shipowners chose another, slightly more costly, but ecologically clean version and switched to using fuel with a sulfur content of no more than 0.5%.

Green energy instead of hydrocarbons

According to a report from the International Energy Agency, ammonia, hydrogen and biofuels will meet more than 80% of shipping fuel needs by 2070. Moreover, in the case of hydrogen, about 13% of its world production will be used for these purposes. It remains only a matter of time, since it is not known when the scheme for using the new fuel will be developed and when it will become available in commercial quantities.

It should also be borne in mind that the technology for the production of the same ammonia itself is not very ecologically friendly, not to mention the fact that this process uses energy, the source of which is still the same fossil fuel.

More ecologically friendly fuel production methods based on green electricity will allow the new fuel to be used, especially for large ships on long-haul voyages.

Experts in this field have different assessments of the timing of the transition of the marine industry to new energy sources.

If we talk about the decarbonization goals set by the international maritime community, for example, the IMO (International Maritime Organization), from January 1, 2020, introduced new stricter standards for fuel purity, limiting the sulfur content in fuel oil to 0.5% (from 3.5% earlier). By 2030, the target is to reduce carbon dioxide emissions (per vessel) by 40% compared to 2008 levels. In the long term, by 2050, it is planned to reduce the total volume of greenhouse gas emissions by 50% compared to the current level.

On the other hand, it is important not to concentrate on one type of fuel, but to develop a package of solutions for shipping with all its diversity of sectors – and unlike today’s situation, tomorrow everyone will have to find their own solution, economically justified both locally and globally.

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