For nearly a century, the world’s oceangoing fleet has been operating on crude. The 50,000 vessels ploughing the high seas consume over five million barrels daily, not much less than the aircraft. One-twentieth of oil ends up getting burned in a ship’s engine. But these days may be ending soon.
This is because the world’s merchant vessels are about to undergo the most significant and profound change they have ever experienced since the dying phase of coal-powered steamships. Regulations and rules being hammered out silently by the International Maritime Organization or IMO (the UN body regulating shipping) are about to change the industry beyond measure.
New and unique energy technologies for vehicle engines and power stations are the most significant drivers behind decarbonization today. That does not look like it is happening just yet in shipping. Even so, we may be reaching a tipping point.
Following decades of resistance, the IMO is about to implement measures to reduce its carbon footprint in the shipping world. It wants to lower emissions intensity to about 40% below the levels of 2008 by the end of the decade, with carbon pollution by the year 2050 dropping to half of the observed levels of 2008. From 2023, all vessels will have to share their emissions and report their strategies to improve if they have been underperforming.
The shipping industry is conservative, and the IMO is typically dominated by the industry it has been regulating. The regulations are largely voluntary, in line with what ship-owners do for cost management. Some of the most significant contributions will come from easy measures like slowing the ships’ speed on open oceans and regularly cleaning hulls.
Even so, the fueling of vessels is undergoing a revolution — or multiple overlapping changes. Three years ago, all ships were operated by heavy fuel oil (HFO), a refinery byproduct that costs nearly a third less than crude.
HFO is cheap but nasty. It comes with a heavy sulfur content that can damage the environment. The IMO tightened rules on sulfur emissions at the start of 2020, mandating any vessel that could not install pollution-control devices to switch to cleaner diesel overnight.
It is possible that several broader problems in the oil market can be traced back to that decision. It soon added more than a million daily barrels of diesel demand within a market that churns out approximately 27 million barrels daily.
As freight rates have returned to normality in the past few months and fuel costs instead of port-specific bottlenecks have resumed the role as the headache for cargo lines, the spread between low-sulfur diesel and high-sulfur fuel oil has drastically widened. Diesel now tends to cost over twice as much as HFO.
Faced with rising costs to power fleets, ship owners are now switching to eco-friendly alternatives. So far, the winner has been LNG, which typically delivers energy at a considerably lower price than diesel but was unknown as a marine fuel even until a few years ago.
About 98% of car carriers currently on order are LNG powered, with about 49% of cruise vessels, 32% of bulk carriers, 26% of container vessels, and 28% of tankers, per a study carried out in 2021. Of new ships ordered in 2022, 444 — 63% of the by tonnage — have been alternative fuel-operated, per a leading shipping data service firm.
LNG’s dominance is not a massive win in terms of emissions. While its carbon footprint is comparatively better than crude-oil items, the performance can deteriorate if the gas escapes without getting combusted — a problem common to most marine engines. However, the increasing cost of diesel makes other fuels all the more attractive. Methanol is made from natural gas, and a 30 to 70 mix of diesel and biofuel is competitive with the rate of low-sulfur fuel oil, per an October presentation made to the IMO.
By using IMO to implement unity on the market and, at the same time, punish free riders, the vessel owners with the most significant fleets stand a chance of passing the costs on, helping to entrench their position.
AP Møller–Mærsk A/S, the most extensive container line, has been staying aloof from the shift to LNG-fueled vessels, wagering the shipping industry will shift to zero-carbon fuels. In May 2022, the IMO reportedly agreed to include a carbon price in the upcoming measures for lowering emissions.
References: Economic Times, Washington Post