Shipping is sizing up energy transition opportunities

Industry is closely evaluating ordering, fuel and technology options now that there is greater clarity on global emissions reduction targets, carbon pricing and performance measures.

After a year in which decarbonisation regulations were agreed to be sharpened at both International Maritime Organisation (IMO) and European Union (EU) level, the maritime industry advanced significantly towards meeting its long-range emissions targets in 2023, according to LR’s analysis of vessel ordering, technology and fuel developments.

Regulatory drivers fall into place

At MEPC 80 in July, the IMO agreed a revised greenhouse gas (GHG) emissions reduction strategy with an ultimate goal of phasing out GHG emissions by or around 2050. The first ‘indicative checkpoint’ on that path will be 2030, by which time the IMO strategy calls for a 20%, striving for 30%, reduction in total emissions (based on 2008 numbers) as well as zero- or near-zero carbon fuel use representing 5%, striving for 10%, of total shipping energy use.

Last year also saw the entry into force of new rules facilitating shipping’s inclusion in the EU Emissions Trading System (ETS) – under which emissions on voyages to, from and between ports in the European Economic Area (EEA) will be subject to carbon pricing from 2024 – and FuelEU Maritime, placing financial penalties on ships using EEA ports if they fail to meet stepped energy intensity reduction targets from 2025. Analysis from LR in March showed the quickly mounting costs these measures will impose on fleets, as well as some of the innovative strategies that will be needed for owners to reduce their exposure.

Vessel orders and retrofit conversions

With the combination of global emissions reduction targets, carbon pricing and performance measures now in place, the dynamics of ship ordering, technology development and fuel supply are shifting rapidly. With just 27 methanol-capable vessels currently in service, 143 new construction orders were placed in 2023, which including previous orders will take the methanol-capable fleet to 227, according to data from Clarksons.

One of the defining trends of the year was the surge in methanol engine retrofits. More than 100 retrofitted vessels are due to join the only methanol conversion currently in operation, Stena Germanica, which converted in 2015. Alternative fuel conversions were explored in detail in LR’s Engine Retrofit Report , which identified a significant gap in potential demand for retrofits and the current capability and capacity of yards to handle them.

Ammonia engine technology moved closer to maturity in 2023, with the commercial launch of Wärtsilä’s first ammonia four-stroke engine, the first full-scale two-stroke engine tests by MAN Energy Solutions and the first approval-in-principle for an ammonia two-stroke engine, granted to WinGD’s X-DF-A engine concept by LR. A key signal of the urgency of shipping’s decarbonisation agenda and the potential of ammonia as a carbon-free energy carrier is the fact that four firm orders have already been placed for ammonia-fuelled vessels, all in 2023 and two classed by LR, with several more orders under discussion or publicly reported.

Orders for vessels powered by fossil-based alternative fuels, which will need to be replaced by synthetic or biomass-derived equivalents to allow zero- or near-zero emissions, also continued to surge in 2023. Orders to the end of the year will increase the LNG-fuelled fleet by 90% to 1,938 vessels and the LPG-fuelled fleet by 78% to 189 vessels. Overall, ordering of alternative fuelled vessels reached its highest volume ever in 2023. Combined with emerging demand for alternative fuel conversions, those orders are an early positive indicator that the global fleet could be technically capable of meeting IMO’s 5-10% target for zero- or near-zero carbon fuel use by 2030.

Onboard carbon capture is also increasing in maturity, with 16 retrofits contracted for in 2023 taking the total orders to 22 vessels on top of an existing fleet of 31. The greater activity reflects the evolving marinisation of the technology, with LR issuing Approvals in Principle to Rotoboost and Erma First last year. Eleven of the retrofits booked in 2023 are for vessels a decade or older, indicating that owners are using carbon capture as a solution to see ageing vessels through their life, complying with regulations for the next decade or so without the need for fuel conversion.

Alternative fuel readiness

Realisation of the IMO’s 2030 target will depend on fuel availability as well as shipboard technology. The Zero Carbon Fuel Monitor from LR’s Maritime Decarbonisation Hub has tracked the technology, investment and community readiness of key candidate zero and near-zero emissions fuels across the supply chain since 2018. Its latest update in October 2023 – as well as the recent ‘Future of Marine Fuels’ report – show that despite concrete developments in fuel supply over 2023, including the first orders for ammonia bunkering barges and large-scale green methanol supply contracts, supply needs to be scaled up significantly for many fuel candidates.

Among the general themes behind rising readiness levels is a significant scale-up of renewable energy harvesting, driving increased investment readiness of green fuels resources. Additionally, there has been a notable rise in the number of national hydrogen strategies and establishment of production facilities. The increasing acceptance and deployment of carbon capture, utilisation and storage has also contributed to greater viability of ‘blue’ fuels that offer an alternative to fuels produced entirely by using renewable electricity.

Tackling Methane Slip

However, there are also cautionary notes for alternative fuel development. Growing concerns about the scaling potential of sustainable carbon sourcing has led to downgraded readiness levels for methane, either from biomass or electricity, and e-methanol. And the ship propulsion readiness for all forms of methane has been reduced to reflect the challenges of minimising emissions of unburnt methane, a significantly more potent greenhouse gas than carbon dioxide. There is, however, continuing work in this area, including the Methane Abatement in Maritime innovation initiative (MAMII), led by the Safetytech Accelerator, which is working to identify solutions and mechanisms for capturing, calculating and abating methane emissions. The membership of MAMII currently includes CoolCo, United Overseas Management, Capital Gas, Celsius Tankers, Global Meridian Holdings, Mitsui O.S.K. Lines, NYK Line, MISC, TMS Cardiff Gas, Maran Gas Maritime, Mediterranean Shipping Company, Carnival Corporation & Plc, Seaspan Corporation, Shell, LR and Knutsen Group.

Growing green corridor shoots

Building on advances in 2023, the action required to deliver the required zero or near-zero carbon fuels remains significant. A progress report released in November by the Silk Alliance, established by the Maritime Decarbonisation Hub in May 2022, projects a strong and increasing demand for methanol and ammonia from 2030 onwards. The report highlights the potential demand and supply of the green corridor cluster based in Singapore. According to the analysis in 2030 more than 3 million tonnes of clean methanol and a minimum of 280,000 tonnes of clean ammonia will be needed to meet the demand of 137 alternative fuelled ships within the 359 vessel baseline fleet of the Silk Alliance cluster, envisioned as mainly bunkering in Singapore.

In its latest update the Silk Alliance released an implementation plan for bringing the green cluster to reality. The Alliance is now applying the projected fuel requirements and tentative carbon intensity to scope the cost gaps within the cluster and to identify financing mechanisms that can bridge these gaps.

Projects like the Silk Alliance and MAMII, along with industry leading rulesets for alternative fuels, fuel scenario research, guidance for safe design and operation* and the classification and approval of leading-edge vessels and technologies, exemplify Lloyd’s Register multifaceted commitment to supporting shipping’s decarbonisation ambitions in 2024 and far beyond.
Source: Lloyd’s Register