Global News Fossil fuel price may outstrip green alternatives by 2025

Tightening emissions control measures for shipping could make existing maritime fuel more expensive than low-carbon alternatives as early as 2025, according to a research paper from energy investment specialist Longspur Capital.

The report, released earlier this month, argued that of the alternative fuels being considered by container shipping, methanol provided the most viable route to comply with stricter emission regulations from the International Maritime Organization (IMO) and the European Union.

“There is a strong move among ship owners to address decarbonization, and methanol is emerging as a key solution,” Adam Forsyth, head of research at Longspur, said in the report. “Regulatory developments from the IMO and EU are raising low-carbon shipping up the agenda and methanol is seeing strong interest, with over 100 methanol-fuelled vessels now on the water or on order.”

European legislators agreed to further tighten emission rules this week in an ambitious deal aimed at accelerating the shift from fossil fuels to green alternatives. The European Parliament and European Council reached a provisional agreement that sets out a fuel standard for ships that steadily increases the use of renewable and low-carbon fuels to lower emissions over the next 25 years.

The EU will also include shipping in its Emission Trading System (ETS) from 2024, will introduce taxation of marine fuels under the Energy Taxation Directive later this year to incentivize the use of low-carbon fuel, and plans to impose significant emission penalties under the FuelEU Maritime Initiative. Energy efficiency limits tightened The Longspur report highlighted moves by the IMO that will hasten the use of alternative fuels, such as designating the Mediterranean as an Emission Control Area (ECA) for sulfur oxides from May 1, 2025, which will include the Suez Canal. The ECA designation means vessels will not be able to use very-low-sulfur fuel oil in the Mediterranean and, as such, will need to find alternatives.

The IMO is also introducing tightening energy efficiency limits requiring vessels to improve overall emissions efficiency and this could tighten further toward a 2030 target of a 40 percent reduction in carbon dioxide (CO2) emissions.

The IMO’s Intersessional Working Group on Reduction of GHG Emissions from Ships is meeting at the IMO headquarters in London this week where it hopes to finalize a revised emissions strategy addressing market-based measures such as introducing a carbon levy, and review the system used to collect ship fuel consumption data.

“These changes could make existing maritime fuels more costly than low carbon alternatives as early as 2025,” Forsyth noted in the Longspur report, with methanol the most likely alternative.

The report argued that methanol derived from natural gas, known as “grey” methanol, already offers key advantages, such as lower tank-to-wake emissions, that allow it to comply with EU greenhouse gas limits.

“We see this flexibility as making it a strong option for ship owners now, and as a result, we see the fuel becoming a major part of the decarbonization toolkit,” Forsyth wrote.

Rolf Habben Jansen, CEO of Hapag-Lloyd, said the options for carbon-neutral fuels are still limited because they aren’t being produced at a high enough volume.

“As we go into the next decade there will be more fuels available and in some cases that means we will accelerate some replacement of the fleet, but we will also retrofit ships, particularly for methanol,” he told reporters at a recent press briefing.

However, Habben Jansen noted that although producing alternative fuels such as methanol is more expensive than current marine bunkers, the greater the adoption by the industry, the quicker the production costs would be reduced.

“If we look at what it costs to produce methanol, it will be materially more expensive than the fuel we produce today, and we need to be prepared for that,” he said. “While the adoption may not go that fast, once it is rolling then it will get faster and faster, and that will place pressure on the industry to decarbonize even faster.”

Habben Jansen also expects methanol to be just one of several potential alternative fuels adopted by container shipping.

“At the moment, everyone looks at LNG [liquefied natural gas], methanol, and ammonia, but I don’t think any of them is the holy grail,” he said. “We could end up with a mixture between them, but I wouldn’t rule out something else that comes along.”