Clean fuels represent good returns for investors

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The race to move away from oil and switch to cleaner fuels should prove lucrative for investors and is attracting interest from fund managers, according to the Boston Consulting Group.

According to the U.S. consultancy, to meet climate targets, shipping must start using clean fuels such as ammonia, methanol and biofuel. This is a big transition that requires big spending, creating investment opportunities, for example, in the companies that will manufacture the alternative fuels, or in the new infrastructure needed at ports.

“There is a lot of money to be made in this transition,” said Peter Jameson, partner at BCG. “The big investment funds, the pension funds, are now looking at how to deploy their funds in these potential growth markets.”

The shipping industry, which handles more than 80% of all traded goods and consumes about 5 million barrels of oil a day, wants to achieve zero carbon emissions by 2050. That means switching to alternatives, and fast. Given that ships have a lifespan of 20 to 25 years, those ordered in the next few years could still be in use by mid-century, meaning they should be able to run on clean fuels, even if large-scale supplies are not yet available.

Getting shipping to a net CO2 level requires an investment of about $2.4 trillion, about 70% of which will have to be spent on cleaner fuels, mostly in their production, storage and distribution, according to BCG estimates. The consultancy has offices in more than 50 countries and regions and says many of its clients are among the world’s 500 largest companies.

Decarbonizing shipping poses many challenges, in part because of the thousands of miles ships typically travel to deliver their cargoes, which means battery-powered carriers are not an option for much of the industry.

The consultancy sees clean versions of ammonia and methanol as the best fuels of the future for long-haul shipping, which accounts for most of the sector’s emissions. Batteries are more suitable for short-haul journeys, especially for ferries. Green hydrogen, an essential component of clean versions of ammonia and methanol, should play a key role.

Engine companies such as Wartsila Oyj and MAN Energy Solutions SE “can see a new market opening up,” Jameson said. “Then there’s hydrogen production itself. Wind and solar, etc. There are pockets of money to be made there.”

Some big names are already involved. Commodities trader Trafigura Group and fertilizer maker Yara International ASA plan to develop ammonia as a carbon-free shipping fuel. Container line giant A.P. Moller-Maersk A/S has invested in a green fuel startup backed by Warren Buffett. There are more than 100 zero-emission pilot and demonstration projects, the Getting to Zero Coalition said in March.

At the moment, the global shipping regulator has a softer emissions target, aiming only for a 50% reduction in total greenhouse gas emissions by 2050. However, one way or another, the bar for the sector is going to be raised, according to Jameson.

“I firmly believe it will come,” he said.

Source Bloomberg

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