In our March semi-annual report, we cited satellite imagery of reduced pollution as economic activity slowed as a “stark reminder of climate change”. In this week’s Analysis, we look at some of the challenges (and opportunities) the shipping industry potentially faces with its cargo base, changes in offshore activity and in reducing its own emissions footprint through fuel transition, technology and regulation.
Most international forecasting agencies now produce energy transition scenarios and in our “Graph of the Week” we present some of our own work in this area. Part of a much broader body of work and a host of assumptions, the graph shows two scenarios for “gradual” and “rapid” energy transition, split out into energy supply sectors most relevant for our shipping “universe”. Our broader modelling work also goes on to analyse potential impacts and nuances around seaborne trade, offshore energy production and fleet renewal requirements: here we present a few highlights from the framework.
“Energy Fleet”…
We estimate that around 40% (some 840m dwt of tonnage moving crude, oil products, LPG, LNG, thermal coal) of shipping capacity services energy transportation. When the production levels of shipping’s largest customer group might “peak” is worth considering: the modelling suggests for gas production this may be between 2035 and 2045 but for coal much earlier (and a 70% total decline by 2050?). The shipping and trade context is more complex and nuanced; our modelling generally suggests later “peaks” for actual seaborne trade of hydrocarbons. Trading patterns also impact: while global energy supply has grown at 2.0% p.a. in the past 10 years, our “energy fleet” has been growing twice as quickly at 4.4%.
Offshore…
Another shipping segment servicing the energy sector is of course Offshore: today there are ~10,000 vessels and rigs supporting across exploration, development and production at oil and gas fields that produce some 17% of global energy (27% of oil and 32% of gas). In the two scenarios, combined offshore oil and gas production peaks in 2028 and the 2040s but gas is the growth story. We also estimate a fleet of ~600 vessels (most are small CTVs) are supporting offshore wind (<0.1% of current energy supply). In both scenarios, offshore wind grows strongly to reach between 4% and 6% of energy supply by 2050 (modelling projects much larger growth for onshore renewables).
Fuelling Transition…
We are also continuing to tracking closely shipping’s important efforts to reduce its own emissions footprint (~850mt, 2.4% of global CO2). This area alone is a huge area to monitor: regulation; technology; value and earnings impact; fleet renewal; financing; ESG. Our latest count of alternative fuelled vessels stands at 1,063.
Covid-19…
The current unprecedented collapse in energy demand and building surplus adds further uncertainty. Perhaps demand will initially “bounce” but then energy transition trends will “amplify”? Despite so many complexities, and the mixed track record of long term scenarios, addressing issues around climate change is likely to be central for the shipping industry in the coming decade.
Graph Notes
Our Graph of the Week shows energy transition scenarios under a “Gradual Transition” and “Rapid Decarbonisation”. In the gradual transition, energy supply grows by 4.1 btoe and reaches 31% non-fossil fuel by 2050. In the rapid transition, energy supply grows by 1.8 btoe and to 50% non-fossil fuel. Offshore wind produces 2,850 TWh and 3,940 TWh of electricity in 2050 in the two scenarios. Our aim is to frame energy transition scenarios in the shipping context. Further analysis, including implications for seaborne trade, fleet renewal and water depth of offshore activity is available on request and we will be releasing further results going forwards.
The author of this feature article is Stephen Gordon. Any views or opinions presented are solely those of the author and do not necessarily represent those of the Clarksons group.
