With a record share of newbuild orders in Q1 alternative fuelled, this week’s Analysis, extracted from our upcoming Fuelling Transition report, tracks progress in the shipping industry’s vital decarbonisation journey. While the unprecedented technology shift, fleet renewal, investment and policy framework needed will take decades to implement, there are already material fleet changes and market impacts to track.
As shipping markets experience their most profitable period for over a decade, “green” issues generally, and de-carbonisation specifically, remain “front and centre” for boardrooms across maritime. Despite long-term emissions reductions (down 14% since 2008 while moving 40% more cargo), the challenge remains significant: we estimate that world fleet emissions will increase marginally in 2022 to c.885mt and 2.4% of global CO2.
Alternative fuels are gaining traction (38% of the newbuild orderbook by tonnage, up from 28% a year ago and 12% five years ago, vessels >100GT). In Q1 2022, there was a record share of alternative fuel capable orders (61% of total GT; still an all-time high of 48% with LNG carriers excluded), with a further trend to optionality (e.g. orders combining LNG capable and ‘ammonia ready’ were 10% of the total). For context, in 2021 32.7% of newbuild tonnage ordered was for alternative fuel capable vessels (454 units), up from 209 orders in 2020 and 46 orders in 2016. Across the current orderbook, LNG fuel has the most traction (33.3% of total orderbook including very strong adoption in car carriers), followed by LPG (2.3%), methanol (1.2%), ethane (0.3%) and hydrogen (6 units), while battery/hybrid propulsion has had good uptake in smaller vessel sizes (1.1%: 159 orders/1.8m GT).
The share of the world’s trading fleet that is alternative fuel capable has reached 4.5% (4.1% is LNG fuelled) by tonnage capacity (c.1% basis numbers) and we project this will reach 5% by the start of 2023. But away from alternative fuels there are other important trends. By start 2023, we project that 29% of tonnage will be “eco” modern, 24% will be scrubber fitted, and 23% will have an Energy Saving Technology (EST) fitted (perhaps EST uptake, along with changes to speed, will accelerate with EEXI/CII implementation). Besides the emissions context, we now expect a record fuel bill for shipping in 2022 (>$200bn) to enhance underlying trends towards charterer preferences for fuel efficient tonnage, and increasingly complex/“tiered” charter/S&P markets.
It is unlikely that the unprecedented fleet renewal needed to decarbonise will progress evenly. Technology and regulatory uncertainty remain. Huge investment is needed. The total orderbook is a “short” 10% of the fleet and the average age of the world fleet is increasing. Emissions policies and regulations themselves may impact supply-demand balances with upside volatility for freight/charter rates.
While there is now a huge body of technical research, economic analysis and policy announcements around shipping and decarbonisation, we hope our Fuelling Transition report/data series continues to provide a helpful framework for monitoring the regulatory, technological, economic and investment challenges facing stakeholders across maritime as they plan for the vital Green Transition.
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.