Decarbonization footpath: We need to be realistic

During the 2024 GREEN4SEA Athens Forum, John N. Cotzias, Projects & Finance, Xclusiv Shipbrokers, delivered a focus presentation, advocating for reducing emissions in a practical and realistic way.

Shipping’s contribution to global emissions

We’ve heard a lot about decarbonization, the path to 2030 as a first milestone, and then to 2050. Many point fingers at shipping, which, based on simple calculations, is responsible for 2.24% of the world’s CO2 emissions. This 2.24% is a percentage of a percentage: transportation as an industry, accounts for 16% of global greenhouse gas (GHG) emissions, and maritime contributes 14% of that.

Looking at how CO2 emissions are divided within maritime shipping, the majority comes from container ships, followed by bulkers, which are the most common, and lastly, tankers. This highlights the need to address environmental concerns. While I’m not dismissing the importance of reducing emissions, there are practical ways to achieve this, which I will explain from a commercial, shipbroker’s point of view and not a technical perspective.

Similar to energy ratings on household appliances, RightShip has been rating ships since 2012 based on their CO2 emissions efficiency. These ratings (EEXI and GHG) have become crucial for asset assessment in ship sales.

Shift in buyer priorities

In the past, potential buyers focused on the ship’s particulars, such as speed and consumption. Now, the first question is about the ship’s emission ratings. This shift signifies a new trend in sales and purchases and in the broking profession.

Nonetheless, complying with the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) standards presents complex challenges. CII, imposed on almost all ships, is poorly designed and needs recalibration in order to become a considerable value metric. For example, ships operating primarily in ports, like tugboats and bunkering tankers, are unfairly penalized and rated with an E because they have a lot of port and waiting time (idle time), even though that is part of their purpose.

Moreover, an analysis by ABS, using EU-MRV 2019 data, indicates that a significant portion of ships, such as 92% of container ships and 60% of LNG carriers, need modifications to enhance their energy efficiency ratings. Fortunately, there are several practical and doable solutions, like hull paints, energy saving devices and automations, that help improve ratings.

Financial constraints

However, financing these solutions is a significant constraint, especially for small to medium-sized companies, which form the backbone of Greek shipping. Financing is linked to ESG scores, limiting access for companies with lower ratings.

Surprisingly, few ships today have adopted alternative fuels. Even container ships, which are heavy burners, travel at more than twenty knots and exceed consumption by more than 150 tons, a day. A modern container ship using even the well-known conventional fuel technology of today could see significant reductions in fuel consumption and subsequently emissions. 

Alas, only 16.8% of new builds are alternative-fuel capable. This percentage refers to vessels that can use alternative fuels, not those that are truly alternative fuel ready. These so-called “alternative fuel ready” ships are often marketed as such, but they lack the necessary onboard infrastructure to start using alternative fuels immediately.

The aging fleet problem

Furthermore, the aging fleet presents another challenge. Currently, 77% of the world fleet is older than 10 years. In 2030, about 69% of the bulker fleet, 86% of the general cargo fleet, 76% of the tanker fleet, 72% of the container fleet, and 61% of the gas carrier fleet will be older than 16 years, with insufficient shipbuilding capacity, time, and finance to replace them, even if the industry had agreed and settled on its fuel of choice.

Taking methanol with a pinch of salt

Methanol as an alternative fuel is an attractive choice. It produces less CO2 (7%) and lower SOx (99%) and NOx (60%) than fuel oil burning. Furthermore, it is easy to develop the necessary infrastructure, both onshore and onboard, to aid in its use.

However, methanol requires a significant investment. For instance, if you place a newbuilding order for a Japanese-built Kamsarmax equipped with the best technology available, it will meet Tier 3 or EEDI 3 standards and cost around $42 million. However, an equivalent vessel capable of burning methanol would require an additional $8 million in Capital Expenditure (CAPEX), bringing the total investment to $50 million.

Understanding the key characteristics of methanol as a fuel is essential for evaluating its viability in maritime operations. Due to its lower calorific output, ships need double the quantity of methanol to produce the same energy as conventional fuel. Currently, the price per ton of gray methanol is comparable to heavy fuel oil (HFO). Based on this, we estimate that a methanol-fueled vessel will have double the daily bunkering costs compared to one using fuel oil.

Nevertheless, charterers are unlikely to pay a premium for a greener ship when its bunkering costs are significantly higher—potentially double or even four times the usual expense. This raises the question of whether the additional $8 million investment in CAPEX for methanol capability can be regained.

In addition, looking ahead to 2030 and beyond, the transition from gray methanol to biomethanol or carbon-recycled e-methanol will be necessary. The cost of producing these greener alternatives is currently estimated to be double that of gray methanol, which inevitably will bear more than 3 or 4 times the daily bunkering bill compared to IFO fueled vessel.

The Economics of green investments

While the desire for a return on investment drives the shift to green fuel, higher operational costs in this scenario could deter such transitions. These facts raise the following questions that the industry will have to face:

• If a green investment is much more expensive to invest in and, above all, to run, will this more expensive business attract a charter premium or obtain a discount?
• Also, are the green hype and green benefits (like ETS credits for example) enough to offset the higher Capex and Opex?

The economics of alternative fuels: Key considerations

For any new fuel, the requirements to use that fuel are:

• A new dual fueled ship (Newbuild)
• New fuel production (could be using energy source(s) also to be produced)
• New fuel storage and transportation
• New fuel bunkering

Capital and infrastructure

All these above need:

• Capital to fund it
• Infrastructure (talking of trillions of USD)
• Carbon footprint to create or enable all the above (No one can calculate this even as a rough estimate.)

It is also important to highlight that if new alternative fuels are more than one, then we are facing the above in multiples. Consequently, can anyone ever accurately or even roughly estimate the required amount of money needed and what will be the carbon footprint of these?

We need capital, infrastructure, and accurate carbon footprint calculations to enable these transitions. If multiple fuels are involved, these needs multiply.

Re-assessing rather than re-inventing the wheel

This final example offers a sense of optimism, allowing for some light at the end of the tunnel. We’ve witnessed the delivery of a Japanese Kamsarmax to its owners in October 2023 from a top Japanese shipyard. This ship operates at 11.2 knots, consuming 12 tons of fuel and 2 tons of diesel. In ballast also, this ship has more or less the same speed in knots for practically the same consumption. For comparison, an eco Japanese Kamsarmax burns at same speed around 18-20tons of fuel plus 2 tons of diesel.

This modern vessel, utilizing advanced ship design, cutting-edge technology, a highly efficient engine, and Japanese expertise and R&D, achieves fuel consumption reductions of 37–40% compared to an eco-vessel with an electronic engine and more than 50% compared to a non-eco ship, an equivalent Kamsarmax that, instead of burning 30 tons, burns around 25–26 tons. This optimization demonstrates that we don’t need to reinvent the wheel but rather optimize the existing one using fuel technology that is tested for decades.

Benefits of automation

Furthermore, automation and autonomous navigation systems have reportedly brought about a 15% reduction in fuel consumption and a 10% reduction in carbon emissions. If these advancements prove accurate, they also represent the need for further R&D, possibly through retrofitting existing ships with these technologies.

Integrating advancements

Overall, new ship designs and technological innovations can significantly reduce fuel consumption. For instance, advanced paints minimize drag for improved fuel efficiency, and rotor sails use wind power to supplement propulsion, reducing the need for traditional fuels. Modern ship designs focus on hydrodynamic optimization, featuring sleek hulls and better weight distribution to minimize resistance, while cutting-edge engine technologies enable more efficient fuel combustion and lower emissions.

Additionally, automation and autonomous navigation systems optimize route planning and sailing patterns using real-time data to further reduce fuel usage and carbon emissions. By integrating these advancements, the shipping industry can achieve notable improvements in fuel efficiency without the risk of great uncertainty that lies ahead and without breaking the bank.

Focusing on today’s pragmatic and sustainable technologies and how to optimize them through research and development is fundamental.

source : safety4sea