IMO

With so many low-carbon, carbon-neutral and carbon-negative shipping fuels being touted as the next big thing, it can be hard to determine which are for real and which are mostly hype. Some folks have been talking up LNG, biofuels, clean ammonia, fuel cells ... the list goes on and on. One way to separate the most promising prospects from the also-rans is to keep track of where big shipping companies are placing their bets — and how they’re hedging those wagers, just in case it takes longer than expected to develop fuel-production facilities. Clean methanol in particular is showing signs that it may be one of the frontrunners on both the supply and the demand sides, with an increasing number of firm orders being placed for massive container ships and other vessels that can be fueled by either methanol or low-sulfur fuel oil (LSFO) — there’s the hedge — and a number of new clean methanol production facilities being planned in the U.S. and overseas. (But still, a healthy dose of skepticism about it all is warranted.) In today’s RBN blog, we discuss recent developments in the clean methanol space.

Cargo ships move more than 80% of the world’s internationally traded goods, making them essential to the global economy, but they’ve traditionally been fueled by heavy fuel oil or marine gasoil, both of which are emissions-intensive. With 60,000 or so ships in service, they account for an estimated 2.8% of global greenhouse gas (GHG) emissions, a percentage the International Maritime Organization (IMO) would like to reduce. At the 80th session of the IMO’s Maritime Environment Protection Committee (MEPC) in July, the group adopted a provisional agreement to eliminate GHG emissions from shipping by a date as close to 2050 as possible, with intermediate goals for emissions reduction by 2030 and 2040. Clearly, radical innovations will be required to meet the IMO’s goals. In today’s RBN blog, we look at some of the initiatives directed at emissions reduction in shipping and the challenges to (and opportunities for) operational improvements, especially regarding LNG carriers.

When the world’s second-largest container-ship company makes a massive, long-term commitment to a carbon-neutral shipping fuel, you can’t help but take notice. Over the past few months, A.P. Moller-Maersk has placed orders for a dozen large, ocean-going container vessels that will be fueled by “green” methanol, which can be produced by “breaking up” water to produce hydrogen, then combining the H2 with captured CO2 to “make up” enviro-friendly bunkers. And, to ensure an ample supply of the climate-friendly fuels for its first 12 “boxships,” the shipping giant also has entered into strategic partnerships with six alternative fuel companies that by 2025 will be producing a total of at least 730,000 metric tons (MT) a year of either bio-ethanol or e-methanol — two chemically identical forms of green methanol. In today’s RBN blog, we discuss why Maersk thinks bio-methanol and e-methanol may be the carbon-neutral shipping fuels everyone’s been searching for.

International shipowners need to significantly reduce their carbon-dioxide emissions by 2030 and will come under pressure to achieve carbon neutrality by 2050. Given that the industry currently depends almost entirely on fossil fuels for ship propulsion — and that every zero- or near-zero-carbon alternative faces serious headwinds — it won’t be an easy or low-cost transition. One pathway would be expanding the use of LNG as a bunker fuel in the near term and then shifting to alternatives like bio-LNG and synthetic LNG as they become more commercially available and economic. Another would be to use “green” or “blue” hydrogen, ammonia, or methanol. But there are challenges to each, not the least of which are the small volumes of non-traditional fuels being produced — and their high cost — and the need for new infrastructure both to produce and distribute them, as we discuss in today’s RBN blog.

Leading international shipping associations and many of the large shipowners they represent are pressing the International Maritime Organization (IMO) to take a much more aggressive approach to decarbonizing their industry, and calling for a $100/metric ton fee on carbon dioxide emissions from ships to spur investment in no-carbon propulsion systems. In effect, shipowners—themselves under pressure from their large, ESG-minded customers, are telling the IMO that its goals of reducing global shipping’s carbon intensity by 40% by 2030 and total greenhouse gas emissions by 50% by 2050 are far too timid. They are insisting that the IMO set the industry on a course to quickly ramp down its carbon dioxide emissions in the 2020s and achieve net-zero CO2 emissions by mid-century. If the shipowners prevail, it could result in the phase-out of hydrocarbon-based bunker fuel in favor of low-carbon alternatives like ammonia, hydrogen, and electric batteries. In today’s RBN blog, we begin a review of the big changes ahead for global bunker fuel and what they mean for oil and gas producers and refiners.

The planned implementation of the International Maritime Organization’s rule slashing allowable sulfur-dioxide emissions from ocean-going ships on January 1, 2020, would create significant demand for 0.5%-sulfur marine fuel — a refined product that few refiners produce today. That could present a big challenge to the global refining sector, which will be called upon to produce marine fuel that complies with “IMO 2020,” as the rule is commonly known. But refiners have stepped up before, and if the IMO 2020 mandate proves to be unachievable and would put global commerce at risk, there could be ways to deal with it — including exemptions or implementation delays. In any case, the move toward much cleaner bunker fuel will be a boon to complex refineries along the U.S. Gulf Coast and elsewhere that can break down bottom-of-the-barrel “residual” fuel oil into feedstocks for gasoline, diesel and other high-value products. Today, we continue our analysis of IMO 2020 and its effects.

Shipowners and refiners are struggling with how to prepare for January 1, 2020, when all vessels involved in international trade will be required to meet significantly stricter limits on emissions of sulfur oxides (SOx), either by using fuel with a sulfur content of less than 0.5% or by “scrubbing” the exhaust of ship engines when using the much higher-sulfur bunker fuel that most ships now rely on. The International Maritime Organization’s (IMO) new sulfur rule isn’t a minor tweak. It’s a game changer that already is causing widening spreads on the futures market between 3.5%-sulfur heavy fuel oil (HFO) — the traditional global bunker fuel — and rule-compliant low-sulfur distillates. The rule also promises to be a boon to complex Gulf Coast and other refineries that can break down residual-based HFO into higher-value, lower-sulfur distillates. Today, we begin a new series on how shipowners, refiners and the markets for HFO and low-sulfur marine fuel are responding (or not) to the coming change in global bunker requirements.

Forty percent of the world’s fuel oil - the residual oil left over after extracting lighter products from crude oil - is used as bunker oil to power Ocean going vessels. Much of that fuel has relatively high sulfur content. Given that refineries sell fuel oil for less than the cost of crude – the bunkers market has traditionally been a convenient dumping ground for unwanted high sulfur residual fuel oil. New international regulations that came into force in 2012 drastically reduce the permitted sulfur content in bunkers after 2015 in the world’s populated coastal regions. Today we describe the impact the new rules could have on refiners.