Ship operators look to LNG to reduce emissions

Natural gas-powered ships are increasingly popular as an intermediate measure as the search continues for non-carbon-based fuels

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The shipping industry, under increasing pressure to reduce carbon emissions from shipping, is reaching a growing consensus that liquefied natural gas will be an intermediate solution to finding a cleaner fuel to power ships.

Two of the world’s largest container lines have ordered vessels that will operate on LNG, while Royal Dutch Shell PLC and Australian miner BHP Group Ltd. have in the past year offered long-term charters to shipowners willing to build natural gas-fueled tankers and bulk carriers.

“The choice of LNG is now emerging as a mature energy solution, particularly effective in terms of environmental protection,” said Mélanie Rigaud, spokeswoman for France’s CMA CGM SA, which operates 13 LNG-powered container ships and is due to take delivery of another 19 such vessels before next year.

The commitment to new fuel sources represents the biggest change in ship power since the industry switched from coal to oil more than 100 years ago.

The aim is to meet the deadline set by the International Maritime Organization, the United Nations’ maritime regulator, to halve carbon emissions by 2050 compared to 2008 levels. The choice of measures to meet the target carries big risks for ship operators, with shipping services provider Clarkson Research Services Ltd. estimating that switching to new forms of energy could cost the industry more than $3 trillion.

A range of new fuels are being tested, from ammonia and hydrogen to biofuels, but none are available in the volumes needed to power the world’s 60,000 ocean-going vessels and tens of thousands of smaller ships. Researchers are also working to create engines that can run ocean voyages on alternatives to fossil fuels. So far, only the United States and Saudi Arabia have formally committed to work on the IMO’s emissions strategy.

The work comes at a time when the global maritime sector is under increasing regulatory pressure to clean up.

U.S. special presidential climate envoy John Kerry said this week that Washington is “committed to working with IMO countries to adopt a goal of achieving zero emissions from international shipping no later than 2050.”

John Kerry spoke ahead of a virtual climate summit President Biden kicked off Thursday with world leaders at which he unveiled a new U.S. emissions reduction target.

In recent days, the U.K. government released a carbon reduction plan that includes international shipping and aviation in the country’s efforts to reduce emissions for the first time.

Proponents of natural gas expect its use to become widespread over the next decade and continue beyond the IMO deadline, given the high cost of converting to carbon-neutral ships. According to IMO, the order book for LNG-powered ships currently stands at more than 139 vessels, of which 27 have been ordered this year.

Martin Stopford, non-executive chairman of Clarkson Research, told a shipping decarbonization forum this month that switching from the heavy fuel known as bunker to zero-emission ships could cost the industry more than $3 billion.

Some $518 billion will have to be spent on upgrading container ships, he said, $509 billion on bulk carriers, $395 billion on gas carriers and $357 billion on cruise ships. Another $214 billion will be needed for tankers, $319 billion for ocean-going vessels and more than $900 billion for smaller vessels such as tugs and ferries sailing in coastal waters.

CMA CGM has stated that six of its new LNG-powered vessels, each capable of holding 15,000 20-foot containers, will operate in U.S. ports.

German rival Hapag Lloyd AG last year placed an order worth more than $1 billion for six LNG-powered behemoths that can move 23,500 containers each.

“These vessels will be very efficient and will have 15% to 25% lower CO2 emissions,” said Tim Seifert, Hapag spokesman. “We see LNG as a bridging technology on the road to carbon-neutral fuels.”

Bulk commodity companies such as Shell and BHP are incorporating the vessels as they seek to reduce carbon emissions in their supply chains.

“If you want a long-term contract with a big customer, one of the first things that comes up is cleaning your ships,” said George Lazaridis, head of research at Athens-based Allied Shipbroking Inc. “Right now, LNG-powered vessels are in high demand and, if you have them, you’re in good shape to get a good chartering contract.”

Shell has so far chartered about 60 LNG-powered vessels, including about a dozen that are still under construction at shipyards, according to a person involved in the process.

Tahir Faruqui, Shell’s LNG director, told the decarbonization forum that gas-fueled ships are an “obvious choice” and an “obvious zero-risk investment” because regulators are working to tax or penalize carbon emissions.

However, the push toward LNG is not unanimous, with critics of natural gas as a fuel claiming that shipping’s investment in the fuel could set back the drive toward full greening.

Denmark’s A.P. Moller-Maersk A/S, the world’s largest container line in terms of capacity, says it will opt for zero-emission alternatives to fossil fuels rather than choosing LNG as a bridge fuel for its fleet.

“We don’t think LNG is going to play a major role as a bridging fuel, because it is still a fossil fuel and we prefer to go straight from what we do today to a neutral fuel type,” CEO Soren Skou said in February. “We are not going to order any new ships anytime soon, because we have not yet decided on future fuels. We would like to find out first and then build ships that are adapted to that type of fuel.”

In a report this month, the World Bank said LNG “will likely play a limited role” in decarbonizing the industry and recommended countries “avoid new public policies that support LNG as a bunker fuel, reconsider existing policy support, and continue to regulate methane emissions.”

The World Bank is a major source of funding for developing nations and its warning could make it difficult for those countries to secure financing for LNG bunkering infrastructure for ships.

 

Source The Wall Street Journal

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