Market Perspectives: Marine Fuel Market is in Transition and so are Alternative Fuels

Rashid: host of factors. Image Credit: EA

Shipping's choice of alternative bunker fuel will be framed by a host of factors but led by price and, on current showing, it seems that both liquefied natural gas and oil-derived fuels should stay in the running for the foreseeable future, according to energy transition analyst Rhidoy Rashid.

Shipping has a little over a quarter century to get to net-zero emissions. That's a big ask given that "current international shipping policy is inadequate to drive a rapid transition to low-carbon marine fuels".

Current regulation – from the International Maritime Organization and European Union – favours LNG as a marine fuel for early-stage decarbonisation.

"As IMO rules do not currently regulate methane emissions, LNG remains the most competitive low-carbon fuel for now."

This may change as methane comes under the EU's emissions trading scheme by 2026 but for now LNG and carbon-heavy fuel oil look likely to stay the course.

"Oil-derived fuels will continue to dominate through 2050, albeit as a shrinking proportion of the overall fuel pool," said Rashid, who covers the energy transition for consultancy Energy Aspects.

That fuels from fossil sources are expected to continue to dominate in the marine fuels space is not new. But the rise of low-carbon alternatives such as methanol and ammonia is.

Could these alternatives take a significant share away from their fossil sourced competitors?
Rashid agrees that the assertion carries merit.

"Methanol will be one of the more favoured options for shipping decarbonisation over 2025 –35 due to its relatively easy handling and safety requirements."

However, uptake "will be nowhere near as significant as it is with LNG".

And the simple reason for that is cost.

"Methanol contains 37.5% carbon by mass, meaning a truly, low-emissions, methanol fuel must be produced using a non-fossil source of carbon, which significantly increases costs," Rashid said.

It is a similar story for biofuels.

Blending biofuels into very low sulphur fuel oil pools lowers carbon intensity indicators without altering existing engines. For ship operators, that is a plus.

But over the long-term, biofuel is constrained by its high cost, feedstock limitations and sectoral competition from, for example, aviation.

Another alternative fuel with a raised profile in the maritime industry is ammonia.

"Ammonia doesn't contain carbon which is in its favour," said the Energy Aspects analyst.
"But its toxicity and need for enhanced safety measures pose barriers to its widespread uptake."

There is also the question of availability.

The world currently consumes around 150 Mtpa (million metric tonnes per annum) of ammonia and given its low energy density, its use as a ship's fuel necessitates a vast increase in production.

Because shipping companies are loath to put all their eggs in one basket as far as decarbonising their fleets goes, a multi-fuel future for the sector is a given.

But with the multi-fuel market moving rapidly beyond the embryonic stage, the key to its eventual shape will be regulation.

As the chief executive of the biggest, independent bunker company has said, it will be the political compromise of the IMO member states that will drive both supply and demand for green fuels.

And with a pricing mechanism and global fuel standard to be agreed at the IMO by the end of 2025, there is still some time to go before the likely final shape of the future market becomes clear.

Rashid agrees that "the detail of the regulation" will have an effect but adds that, at the same time, the fundamentals across the whole of the energy market will be just as important.