Lack of clarity over clean energy supply driving dual-fuel ship orders

The interim target laid out last year by global maritime regulators calling for a 20% reduction in ship emissions by 2030 has spurred ocean carriers to order 1.2 million TEUs of dual-fuel ship capacity this year capable of burning low- to zero-emission fuels such as methanol or liquified natural gas (LNG), the low-emission fuels with the greatest availability.

The vessels come with a significant price tag. The 16,592-TEU dual-fuel methanol-capable Alexandra Maersk that arrived this week in Felixstowe on its maiden voyage, the sixth in an 18-ship order, was built at a cost of more than $150 million.

“The carriers are trying to make the best decisions they can based on staying in business and knowing that they’re really trying to reduce emissions, so the dual-fuel pathway is almost the only way that they can go right now,” Angie Farrag-Thibault, associate vice president of global transportation at the not-for-profit Environmental Defence Fund, told the Journal of Commerce this week.

About 70% of the total 1.7 million TEUs of ship orders made so far this year were for ships capable of sailing on methanol, LNG or hydrogen, according to Sea-web, a sister company of the Journal of Commerce within S&P Global.

Growing in tandem with the alternative fuel order book is the urgent need for global regulatory support from the International Maritime Organization (IMO) that is essential to drive an accelerated and large-scale shift to zero-emission fuels.

Fuel availability the problem, not shipping: MSC

Soren Toft, CEO of Mediterranean Shipping Co., this week took issue with the lack of regulatory direction over alternative fuels being provided to the industry.

”The real problem to make shipping green is the availability of fuel — it’s not a problem of the ship; it’s not a problem of the engine,” Toft told the International Association of Ports and Harbors’ (IAPH’s) World Ports Conference in Hamburg.

“We have done our own best because we are not getting a lot of help and assistance from policymakers to say we should go this way or that way,” he added. “We are not fuel experts, but we have made a decision to go in the direction of LNG, mainly because we know LNG is available, and because we can see a potential pathway, certainly from fossil [fuels] to bio [fuel], but maybe one day to a synthetic LNG.”

While regulatory progress at the IMO typically moves at a glacial pace — the interests of all 176 member states are seldom aligned — there were positive developments at the IMO’s Marine Environment Protection Committee (MEPC) that concluded its 82nd meeting in London last month.

Member states appeared to get behind a global pricing mechanism and a marine fuel standard, with the meeting producing a draft legal text for ongoing talks around the proposed mid-term measures and how they would be implemented. The plan is to iron out differences and refine the draft text before its approval at MEPC 83 in April 2025 with adoption of the mid-term measures in autumn next year.

If the IMO is not able to roll out the mid-term measures in October next year, there are fears the maritime industry will not be able to meet the interim targets.

“A decision really must be made next year to make sure that the whole industry will be able to work against a time frame that enables them to stay in business, make the right decisions on buying their assets, but know that those fuels are going to come to market so they can actually run the ships,” Farrag-Thibault noted.

Maersk makes LNG move

The need to keep fuel options open and avoid being locked into one pathway was illustrated in a recent Maersk order for dual-fuel vessels totaling 800,000 TEUs capable of sailing on methanol as well as LNG.

Ordering LNG-capable ships was a deviation from Maersk’s deep dive into methanol, but Morten Bo Christiansen, the carrier’s head of decarbonization, said methanol would continue to play the leading role in the carriers’ efforts to meet its science-based emissions targets.

“But we now believe that biomethane [a cleaner version of LNG] is going to play a meaningful role in the in the green future fuels mix and we need to tap into that market,” Christiansen told the Journal of Commerce in an interview this week.

“We expect to get some biomethane in, but we are still relying mostly on methanol because we have a reasonable certainty that we can get the fuel at a reasonable cost,” he noted.

Maersk has secured a significant pipeline of green methanol, but there is not the same certainty of supply for biomethane where production needs to be significantly scaled up.

“The influence of first-movers has been critical, and it continues to be critical, but for the entire industry to change, we really need to see demand driven by the policy side as well,” Farrag-Thibault said.

Narrowing the price gap

Several global pricing mechanisms remain on the table at the IMO with the objective of closing the price gap between fossil fuels and the green alternatives. Methanol, for instance, is three to four times more expensive per ton than low sulfur fuel oil.

Maersk CCO Karsten Kildahl acknowledged the cost reality for cargo owners that would be required to pay more as shipping transitioned to cleaner energy. But he said more than two-thirds of the carrier’s top 200 customers in any case had their own science-based targets that would have to be met.

Transportation falls into the so-called “scope three” emissions category in which a company does not have direct control over the assets that contribute indirectly to its carbon footprint.

“When we have an environment when we can penalize the black fuels and support the green fuels and take the dilemma away from the customers, why not do it?” Kildahl told the Journal of Commerce in Felixstowe this week.

“The green fuel is far more expensive than tradition fuel and we would like to take the difference between the two fuels and nullify that,” he added.

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