Ahti Pool: Alternative Fuels Will Surpass Traditional Bunkers by 2040

by Risto Kariranta, CEO, Ahti
Wednesday May 22, 2024

Do you remember 2019? A simpler time in many ways. Pre-Covid, pre-lockdown, and the only spread that mattered to maritime economics was the Hi-5.

Five years ago, the compliance decision for IMO 2020 was between VLSFO and scrubbers. Similar discussions lie ahead for FuelEU Maritime in 2025 – a regulation that seeks to cap the greenhouse gas intensity of fuels used on European voyages, and then steadily reduce that intensity over the coming decades.

Using the most recent data available (2022), Ahti Pool calculates that the fuel consumption applicable for FuelEU Maritime is 44.1m tons, or 137.2m tons of CO2 emissions, and FuelEU Maritime mandates a 2% carbon intensity reduction in 2025. Will that be a lot? For comparison, the bio mandate for road traffic fuels in Finland – population 5.6m – on its own has achieved a similar impact.

The big difference from IMO 2020 is that for FuelEU Maritime there will be an almost infinite amount of compliance strategies: biofuels, LNG/BLG, e-LNG, e-methanol, e-ammonia, wind propulsion, CCS, shore power, pooling, banking, a mix of fuels, or paying the expensive penalties.

To give you a sense of what that will look like, the team at Ahti have run the numbers on the minimum requirement for several fuels to reach this reduction target.

  • B100 biodiesel (FAME) = ~1.5 million tons per year between 2025-2029.
  • B30 biodiesel = ~5 million tons per year between 2025-2029/ min 1404 vessels. (NB. Not compliant after 2040.
  • Bio-LNG (CI 0 gCO2e/MJ) = ~0.9 million tons per year between 2025-2029 / min 322 vessels
  • E-LNG (CI 20 gCO2e/MJ) = ~ 0.6 million tons per year between 2025-2029 / min 210 vessels

These are minimum demands for an imaginary case where the demand would be fulfilled with only one alternative fuel. In reality, the target will be reached with a mix of all of these fuels.

The Candidates

Each option has its fans. Take wind-assisted propulsion. In just the first quarter of this year, the likes of Louis Dreyfus, Chemship, Oldendorff, Teck, and Vale have ordered newbuilds or retrofits with sails of one form or another. Why might they be doing this?

Wind-assisted propulsion receives special treatment under FuelEU Maritime. Depending on the predicted energy saving, those sails can get a multiplier that reduces the carbon intensity of your vessel. For example, a ship that is fuelled with HFO would require its wind assistance system to provide approximately a 10% energy saving to be compliant in 2025 – a percentage that is relatively straightforward to achieve.

However, wind-assisted propulsion will only ever be part of FuelEU Maritime compliance. The full solutions are to be found in the types of fuels that will be incentivised.

The most progressive bunker buyers have long thought about the energy content of the fuel they are purchasing, and that variable quality has always been there in ships' fuel – talk to anyone who bunkered HFO pre-sanctions at Bandar Abbas rather than Fujairah. But it's even more important under FuelEU Maritime.

A ton of methanol has a completely different energy content compared to the ton of LNG, HFO or a ton of hydrogen. To make the various alternatives comparable, we should not compare the price per ton, but the price per energy unit. The complexity doesn't stop there though. Each fuel will also have their own carbon intensity, a completely new dimension in fuel procurement.

Pool Party Economics

When FuelEU Maritime becomes active law in little more than 200 days, the required greenhouse gas intensity reduction is only 2%. Ahti has calculated that only 1.3% of a vessel's total energy would need to be e-methanol or 3.1% biodiesel for it to be compliant. You could use HFO for all your other bunkers and there would be no punishment under FuelEU Maritime.

The regulation becomes seriously interesting once you start to consider the consequences of your fuel choices. This is because you can pool the GHG intensity that you've attained, and even 'bank' performance which is surplus to your requirements in that calendar year.

What does pooling look like in practice? Ahti's calculations demonstrate that a shipping running on LNG would make, depending on the engine type, ships using HFO compliant. If you use very low-carbon fuels, the gains are much bigger.

Imagine you have a ship that's capable of using e-methanol and consuming a similar amount of energy as ~3,000 tons of HFO per year. Now the carbon intensity of HFO is 91.6 gCO2e/MJ, while the target level for FuelEU Maritime in 2025 is 89.3 gCO2e/MJ. We can reasonably assume that e-methanol will have an approximate carbon intensity of five grams of CO2 equivalent per megajoule (gCO2e/MJ). Additionally, we're able to double the benefits of e-methanol because of the RFNBO [renewable fuels of non-biological origin] fuel reward multiplier. By our calculations, this means that just one ship running on e-methanol could make 75 HFO-fuelled vessels compliant.

This is likely to be one of the major reasons why companies with relatively fixed routes – COSCO, Wallenius Wilhelmsen, X-Press Feeders – are investing so prominently in methanol newbuilds. However, they're not the only sectors ordering methanol-capable vessels. In the last three months Svitzer has ordered tugs, Navios has ordered LR2s, and Euronav has ordered bitumen tankers. Through our analysis for this broad level of demand for alternative fuels, we believe that alternative fuels will surpass traditional bunkers by 2040.

What's worth bearing in mind, however, is that this calculation depends on the assumption that shipping companies will recognise the rationality of pooling and adjust accordingly. If every ship tries to individually fulfil their compliance target with alternative fuels, there is a high risk that demand would outstrip supply. Not least because the aviation and road traffic sectors are also likely to continue to prioritise the same bio feedstocks.

Managing the compliance process, avoiding legal jeopardy, minimising admin, lowering your compliance cost per vessel, and the difficulties of finding trustworthy partners – just five of the reasons why we're strongly advising our clients to pool their emissions.

Availability comes with the demand, and demand is not there without enforcing regulations. The EU will be financially and morally incentivised to ensure compliance. You can go it alone, or you can join the pool party. We know where we'd rather be this summer.

* To learn more about how to navigate FuelEU Maritime Pooling, you can join our webinar at 1500 EET on 22 May.