Not for the first time in shipping’s history, the industry’s choice of fuel is sharply in focus. This week we review not just the imminent low sulphur fuel switch, but also the role of alternative fuels in reducing the ~820mt carbon (~2.3% world output) that the shipping fleet produces per year. But for an industry that took over 50 years to switch from wind to steam, the impact may be no less radical and quicker besides!
Sulphur First…
The immediate fuel issue is of course driven by IMO 2020. Despite the scrubber uptake (~4,000 and counting), we still estimate that there will be a ~160mt switch to compliant low sulphur fuel. Besides our analysis reviewing the expected positive impact on the market supply-demand balance from IMO 2020 (see our previous reports), we will also be launching additional earnings calculations during the fourth quarter to help track how this will play out commercially.
More From Less…
On a broader level, we estimate that the fuel consumption and the carbon output of the world fleet is lower today (~820mt of carbon) than in 2008 (~1,000mt), despite moving 35% more cargo and there being 60% more tonnage on the water. The primary driver has been speed (down 15-20%, source Sea/net) but a new generation of fuel efficient vessels have helped. We now grade around 30% of the world tonnage as “eco” and estimate these vessels produce ~20% less carbon. For example, based on the same voyage assumptions we use for our earnings calculations, a modern “eco” Capesize produces ~85t of carbon per day compared to ~112t for a “non-eco”.
Dash For Gas…
As we reported in our half year report, LNG as a fuel is now dominating most large ship newbuild discussions. We seem to have reached a “tipping point” and from today’s count (see graph) of ~835 ships (3% of fleet GT, 17% of the orderbook) an acceleration looks likely. From a carbon perspective, we estimate an LNG fuelled Capesize would produce ~60t/day of carbon, although this is complicated by issues around “methane slip”.
Other Alternatives…
While LNG is clearly gaining traction as an important “stepping stone” to the IMO carbon targets, we are also tracking the range of other alternatives that are progressing, including LPG (>10 vessels pending retrofit / newbuild), Methanol, Hydrogen, Biofuels, Ammonia, Synthetic Methane and Nuclear. It seems clear some of these will need to “step up” as credible solutions.
Meeting The Targets…
At our “Shipping & Shipbuilding To 2030” seminar we hosted this week, we debated a range of scenarios that might allow the industry to meet the important IMO carbon targets. One successful scenario our modelling team presented to meet the 2030/2050 targets involved a three step approach with (i) a fuel switch to 45% of the fleet LNG, 40% zero carbon and 15% oil (ii) a 10% reduction in speed and (iii) slower rates of tonne-mile trade growth. It sounds easy in a model but however this plays out in reality, Clarksons Research will be tracking the data: let’s just hope that’s less than 50 years!
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.
