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Shipping Industry Balks at Green Energy Transition -WSJ

Hapag-Lloyd is among shipping operators who have placed orders for vessels that run on liquefied natural gas.
Hapag-Lloyd is among shipping operators who have placed orders for vessels that run on liquefied natural gas. (Brendan McDermit/Reuters)

Costas Paris, WSJ

EnergiesNet.com 23 12 2022

Ocean shipping is making its biggest energy transition since switching to oil from coal decades ago, but the shift to low- or no-carbon fuels so far has been messy. 

Shipowners are split on which fuel should be the new industry standard and how soon they can recoup investments to meet environmental targets established by governments and industry regulators. The price tag on investments needed in new ships, alternative fuel production and other infrastructure has been pegged at $3 trillion over the next few decades, according to shipping-services provider Clarksons. 

Methanol is an early contender to supplant the tar-like heavy fuel oil—known as bunker fuel—that powers much of the world’s 60,000 oceangoing commercial vessels. Ocean shipping accounts for roughly 3% of global greenhouse-gas emissions annually, according to the International Maritime Organization, the industry’s global regulator. 

Global projctde-methanol production capacity, Methanol Institute

The energy transition is well under way in the automobile industry, as manufacturers build electric-vehicle and battery plants. But while the average age of vehicles on U.S. roads is about 12 years, the average lifespan of ships is 25 years. Since new container ships can cost hundreds of millions of dollars to build, owners have great incentive to avoid the wrong bet.

A.P. Møller-Maersk A/S, one of the largest ocean shippers with more than 700 vessels in operation, has ordered 19 ships that can run on methanol as well as bunker fuel, said Soren Skou, the company’s chief executive, in an interview. China’s state behemoth Cosco Shipping put in a $2.9 billion order for a dozen methanol-fueled boxships that can move 24,000 containers each. France’s CMA CGM SA has ordered six methanol-powered vessels and South Korea’s flagship carrier HMM and U.S. agriculture company Cargill Corp. are considering such purchases, according to people involved in the discussions.

Some shipowners are trying to develop the market for greener fuels to make them available at ports worldwide at competitive prices. Green methanol is an umbrella term covering liquid methanol produced using renewable energy such as wind or solar power. Its production is limited and its price, on average, is 50% to 100% higher than bunker fuel, boxship operators and fuel producers say.

Maersk will need about 1 million tons of green methanol annually to operate the new ships but global production is about 30,000 tons, Mr. Skou said. To secure the fuel, the company has signed agreements with private methanol producers in the U.S., Asia and Europe, as well as the governments of Spain and Egypt, he said. 

“The industry urgently needs to clean up so we’ve become the middleman to create a new energy market,” Mr. Skou said. 

The first Maersk ship to run on green methanol is slated to hit the water in the second half of next year. The small feeder vessel will move boxes across the Baltic Sea that will later be loaded on bigger ocean vessels.

“Maersk came in the middle of last year and said they need the fuel and if we can produce it they will buy it,” said Knud Erik Andersen, CEO of European Energy A/S, a Danish company that has agreed to supply green methanol to Maersk. European Energy plans to invest $200 million to $300 million to buy equipment and develop a solar farm to produce green methanol.

A Denmark solar farm run by European Energy, a company that has agreed to supply ‘green methanol’ to Maersk.
A Denmark solar farm run by European Energy, a company that has agreed to supply ‘green methanol’ to Maersk. (RobertWengler)

Some companies are making other bets. Big operators such as Swiss-based Mediterranean Shipping Co., Germany’s Hapag-Lloyd AG and CMA have placed orders for vessels powered by liquefied natural gas, which emits less carbon dioxide than bunker fuel and is available in greater quantities than green methanol. Others, including shipowners in Japan, are looking into ammonia, though the substance is years away from use in commercial operations.

“LNG is the only viable technology today that can cut emissions,” said Jerry Kalogiratos, CEO of Capital Products Partners, which runs 18 gas-powered ships in its 97-vessel fleet. 

The International Maritime Organization, the United Nations’ maritime regulator, has set a target for the shipping industry to cut carbon emissions in half by 2050 when compared with 2008 levels. Individual shipping companies and their customers have set their own goals. Maersk has said it plans to have a carbon-neutral fleet by 2040.

Reaching consensus on carbon-reduction efforts has been difficult. It isn’t clear whether shipowners will embrace investments in new ships without guarantees on a certain amount of business and with fears of higher operating costs

“There is no other energy that is so friendly and so easy to handle” as oil, George Prokopiou, a Greek shipowner who charters a fleet of 100 tankers and bulk carriers, told a maritime forum in Cyprus in October. Mr. Prokopiou, who has said alternative fuels would be too expensive for ship operators and exporters, didn’t respond to requests for further comment.

Developing economies, including Brazil, Argentina, Chile and a host of African nations, have said that aid is needed because a shift toward pricier carbon-neutral fuels would harm their export-driven economies by making food and other commodities more expensive to move.

IMO members have for years discussed putting a levy on carbon emissions as a way to encourage owners to invest in green ships, help to build a global network of alternative fuel stations for vessels and subsidize developing countries. Members have yet to formally agree on how such a levy would work in practice.

The U.S. is working to establish green ocean-shipping corridors with trading partners including the U.K., South Korea and Canada that will give docking priority and other benefits to low-emission vessels. It also allocated $3 billion through the Inflation Reduction Act to electrify port equipment and machinery.

The IMO has required that, starting in January, each ship must be assigned an energy efficiency rating, similar to those used for buildings and household appliances, and a carbon intensity rating. The regulator expects the new ratings system will drive some companies to scrap older ships while others will have to lower sailing speeds to reduce carbon emissions.

Ship operators that use high-carbon-emitting fuels will have to pay higher taxes under the European Union’s Emissions Trading System, a development that could push carriers toward using greener fuels but also implement surcharges to customers to recoup the expense. 

That means shipping costs could rise for cargo owners, especially large importers such as Apple Inc., Walmart Inc. and IKEA, as well as mining and agricultural companies. Some shippers are already paying surcharges between $200 and $300 per container to reduce their carbon footprint across supply chains, ship operators say.

How a U.S. Container Ship Crew Lived, Worked Through China’s Lockdown
A Covid-19 outbreak in Shanghai brought one of China’s largest manufacturing and export hubs to a near standstill. The crew aboard a U.S. container ship were stranded at a shipyard, struggling to live and work while under lockdown. Photo composite: Adam Adada

Write to Costas Paris at costas.paris@wsj.com

Appeared on the WSJ, in the December 23, 2022, print edition as ‘Shipping Industry Balks at Green Shift’.

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