INTERVIEW: KPI OceanConnect's Jesper Soerensen on the Near, Medium, and Long Term Future of Marine Fuel

Jesper Soerensen, KPI OceanConnect's Global Head of Alternative Fuels & Carbon Markets. Image Credit: KPI OceanConnect

For all its current popularity, methanol is not being viewed as a long-term solution for marine shipping's energy needs.

Uptake of ammonia bunkers will be slower but is tipped to potentially have as much as 40% market share.

Demand for LNG bunkers will continue to increase.

Conventional oil-based bunker fuel, meanwhile, will have a role to play in the marine energy mix for the foreseeable future, but regulatory changes mean that it simply will not be commercially attractive for ships to continue using such fuel in the longer term.

And the difficulty in producing 'green' fuels will be a key reason there will not be any one dominant fuel in the future marine energy mix.

Those are some of the key takeaways from my recent discussion on future marine energy trends with Jesper Soerensen, KPI OceanConnect's Global Head of Alternative Fuels & Carbon Markets.

While Soerensen's role is a relatively new one having been appointed to the position in September, his experience in the industry spans an impressive 25 years. The majority of that time has been spent with KPI OceanConnect.

A key point that he stresses throughout our conversation is that when it comes to future fuels, both he and KPI OceanConnect are completely agnostic.

"One of the advantages of being a middleman in this, and indeed what our role has been for the past many, many years, is that we don't have to promote one fuel or another," he tells me.

"And if you look at the production capacity of each of the considered fuels at the moment, it's clear that there cannot be one fuel that rules them all. Really, there has to be a multi-fuel future.

"What we see is a short term solution that can bridge the gap to the longer term ones, with biofuels being the immediate step before the uptake of oil-alternative fuels such as methanol, LNG, and ammonia."

The Evolution of Marine Fuel

Our conversation comes at an important point in the evolution of marine fuel use. With the IMO 2020 transition and subsequent economic challenges of COVID-19 all behind us, the transition to net zero emissions is marine shipping's next 'big thing'.

While smaller players may feel it prudent to wait and see what decisions the first movers make, larger players have already been compelled to take their first steps on the road to zero.

And take steps they have, with 20% of new contracts over the last 12 months being for alternatively-fuelled vessels, according to the latest data from DNV.

Even those readers who take the most occasional and briefest of glances at the maritime press will be aware that methanol as a marine fuel is having a moment.

For 2023 methanol was the top choice for alternatively fuelled ship orders and in January methanol orders more than doubled those of LNG - the latter being the top alternative bunker fuel of choice by most any other metric.

But interestingly, Soerensen says methanol is currently only considered a stepping stone solution.

"That is the very forward thinking shipping companies, the bigger players," he tells me.

"From everything that we can see in our discussions with those clients, they do consider methanol as a solution but they don't necessarily think of it as a long term solution.

"It might be more accessible in the medium term than something like ammonia, but if we look at the graphs that we've seen from major owners, going forward we see biofuels taking a priority first, then methanol comes in and becomes a very large, important part of their fuel mix, and then it transitions into ammonia as well.

"I need to emphasize it's not that I'm promoting ammonia, it is just from what we have seen, and certainly some statistics, that when we come towards the latter part of this timeline that we're working on from 2030 to 2050, it indicates that ammonia will continue to increase to have a more dominant role, potentially as much as 40% market share.

"But again, it is a multi-fuel future, so it will still be methanol, and it will still be LNG, and there will still be biofuels as well."

Of those alternative fuels, LNG is without question the most mature. As of today it has by far the largest order book (over 1,000 LNG ships with delivery through 2028), the largest operational fleet (over 500 vessels currently in service) and is by far the most developed from both an infrastructure and demand perspective.

It is arguably also the fuel that has had the greatest promotional backing to date, with the likes of Society for Gas as Marine Fuel (SGMF) already over a decade old while well known LNG bunker advocacy group SEA-LNG was founded in 2016.

Throughout that time LNG seems to have faced constant questions over its credentials as a future fuel. The war of words over LNG being fought out in the press between various academics and lobby groups seems, thankfully, to be largely over, having stalled at somewhat of a stalemate. Still, lingering questions such as the impact of methane slip remain unanswered.

With more alternative fuel options now on the table for shipowners comes more questions for LNG: Is being bested by methanol last year as the most popular alternative marine fuel for new orders a sign of declining interest? Is SGMF saying recently it is "shifting gears to focus on the use of methanol and ammonia" further evidence of that shifting interest? And having been an available option for so long, shouldn't uptake of LNG bunkers be much greater?

While Soerensen acknowledges LNG's "up and down popularity over the years", he believes any talk of LNG's demise is misplaced and he remains bullish for its future prospects as part of the marine fuel mix.

"People talk a lot about methane slip and the potential damage that can do, but the reality is that engine technology is improving every day and it becomes less and less of a challenge," he tells me.

"I think we will see demand for LNG increase, and it will continue to increase for some time yet.

"If you look at the potential going forward for bio-LNG there is potential for it to be part of the fuel mix for the foreseeable future. I definitely see LNG, meaning bio- and, later, e-LNG, as part of the fuel mix in the short to medium term at least, and probably the long term as well."

Infrastructure

Interest in using LNG bunkers spans well over a decade. Indeed, Ship & Bunker was reporting on CMA CGM's plans to develop an LNG-powered box ship way back in 2012.

But no doubt many readers will remember the years of LNG's 'chicken-and-egg' debate, and it could be argued that meaningful development of LNG bunkering infrastructure did not get underway in any serious sense until the end of 2017 when the French container line made its first orders for those LNG-powered ships.

Soerensen says that this lag on developing LNG bunkering infrastructure is still being felt today.

It's also an area where KPI OceanConnect can help.

"We need to see development on the infrastructure for LNG. If we look at the amount of suppliers available to deliver LNG in major hubs, it's still rather limited on a global scale.

"LNG is available in some parts of China, not all but some parts, and there are actually more players in China than most other locations.

"In Singapore, you only really have two players, and one of them has only recently gotten started. Then you have one player in Malaysia - and credit to them for the proactive approach that they have taken to offer LNG in Malaysia, which is something that I find very encouraging the way that their approach has been.

"If you go west from Singapore or Malaysia the LNG options you have before you reach Europe are pretty much non-existent at the moment, and that is a challenge. And this is even considering how much gas comes out of the Middle East.

"So there is a market for LNG, but we also need to see the infrastructure develop.

"It is something that I know that our group is looking very carefully into to see if there is there an area where we can make a difference.

"Part of this, and KPI OceanConnect's approach to it, is we understand that when we look at this new, alternative fuels arena, we see that we need to be more engaged in the supply chain than we have traditionally been. And this is something that we seek to do, because we do have that last mile delivery experience."

Ammonia

Such challenges are, of course, not restricted to LNG. Questions around infrastructure and production of 'green' rather than grey and other less-favourably 'coloured' products not only plague methanol and ammonia too, but the latter fuels are also much further behind LNG in terms of their development as marine fuels.

"An ammonia bunker vessel right now does not exist," Soerensen says, highlighting just how big that gulf is for ammonia.

"So that needs to be designed. Then you need to have a process of how you do the transfer of ammonia from an ammonia bunker vessel to an ammonia receiving vessel. How do you handle that transfer? Because as with any transfer, there will be something in the pipeline. I mean, you can't just throw everything in. So is it the ship that receives it? Or do you put it back into the bunker vessel?

"These are simple things, but things that still need to get put in place."

Unique to ammonia's credentials as a future fuel are some serious concerns over its safety, as highlighted again recently during a panel discussion at this year's IE Week where it was described as "a highly toxic, dangerous chemical."

Still, Soerensen believes such concerns are starting to fade.

"I think we are getting to a point where the stigma about ammonia as a very, very dangerous future fuel is easing up a little bit," he says.

"One of the things that I learned in the past couple of months is that ammonia is less toxic than chlorine. I'm not a scientist so it was not something that I had considered, but I think it's something that is worth thinking about.

"Everyone who's been to a swimming pool has experienced chlorine, right?

"So why shouldn't it be possible to create a safe environment for delivery of ammonia fuel?

"Ammonia is definitely something that is gaining traction, and something that we can see from conversations with ship owners as well that they consider a good long term solution."

Methanol

Methanol, meanwhile, has no such toxicity problems. And advocates will tell you that its distillate-like onboard handling, the ability to more easily convert existing oil-bunkering assets to be methanol ones, and the fact it is already found in great volume at major ports for industrial use, all contribute to its current popularity.

But it remains to be seen whether this is in fact a blessing or a curse.

"There are very clear views from some parts of the industry that methanol remains the only scalable option," Soerensen says.

"Whether that is true; there are definitely advantages with methanol but I don't see it as giving it a better position in the market.

"Some things that are very important are availability and the total production capacity as well. Methanol requires almost double the amount of fuel compared to conventional fuel, so there's that to consider.

"Then everything indicates that much of the availability of green methanol globally will be tied up on long term contracts. So it's worth remembering that you shouldn't just get a methanol burning vessel and then think I can automatically buy my green methanol in ports where I want to lift it. That won't necessarily happen.

"You also need to look at what is the potential for ethanol in green methanol as well and I think this is among the factors that puts it in a favourable position in the medium term.

"But in the longer term, I'm not sure that methanol has a definite advantage.

"And at the moment, green methanol isn't globally available, so that needs to be sorted out.

"Ultimately, when it comes to methanol and ammonia, they are fuels for a little bit further ahead in time, and I say this knowing fully well that the likes of Maersk have started to take methanol and publicize the deliveries.

"But the framework and the infrastructure quite simply isn't there yet and that is something that still needs to be built up."

Building for the Future

In terms of how the infrastructure and frameworks are built, Soerensen points to partnerships as being key, and that intermediaries such as KPI OceanConnect can play a key role in joining the supply and demand sides of the equation.

"I can only underline that it's important that you establish these partnerships. One of the key things that we have seen here is there needs to be an investment in infrastructure, but that investment can and also only come if there's potential for an offtake, otherwise people won't invest," he tells me. 

"So we have a role to play in aggregating that potential volume, and bring this to alternative fuels producers and say: How can we deliver this demand, because we have partnered with X amount of shipping companies to say they are willing to commit long term to this, so would that interest you in developing that infrastructure to meet that aggregated demand.

"So I think we will see the infrastructure coming into place when these partnerships happen. I think that's very important.

"And thankfully, again, I've had the fortune of participating in a number of meetings over the last six to nine months with major owners and operators, and there is a recognition from both sides that this is a necessity.

"Obviously, there's still concern because it's a new way of thinking to say should we engage in these five, maybe 10 year contracts for offtake agreements, as we are not certain how much we're going to need because we have actually never operated ships on these fuels before.

"What do we do if we commit to taking 5,000 tonnes a month, but can only lift 3,000? How do we solve that?

"And this is where we can then come in and say, well, you're not the only one that we are partnering with, we also have others. So if we can make that spread, then it makes it easier.

Biofuels

Until then, Soerensen is among the many who see biofuels meeting the immediate need for lower emission fuels.

As a 'drop in' replacement for traditional oil bunkers, both ships and bunkering assets ostensibly require no changes to handle them. Switching to biofuels is thus a far simpler undertaking than to any of the other alternative fuels.

"We're very happy with the infrastructure that we've managed to build up on that within our organization. We've developed an infrastructure where we can offer biofuels in more than 100 locations worldwide already," Soerensen says.

"This is something we're taking a very active part in and if you look at Europe, it's a fairly developed area, particularly north-west Europe. There's quite a lot of suppliers there."

One major difference between biofuel and conventional fuel is that the sustainability credentials for biofuel need to be recorded within an agreed framework.

There is no such requirement for traditional oil bunkers.

"For biofuel you have to be able to produce proof of the sustainability criteria, so there is a need to become ISCC certified to make sure that there is that proof of sustainability," Soerensen says.

"And while ISCC is required in Europe, if you look at other parts of the world they're still coming to terms with how that should work.

"We play an advisory role there as well and we've engaged with suppliers everywhere to say, okay, what is it that you need from our side? Can we help you? If you take biofuels as a product offering, what do you need?

"And they will come and we will have discussions on ISCC and how there is a need to be certified, this is the process that you need to go through, and so on.

"So we have that advisory role to play there as well, not just on the customer side, but also on the supplier side, because it will be new to some."

With all the talk of new fuels it is important to remember that over 99% of vessels in operation burn oil, and 84% of the current order book is also for conventionally-powered tonnage.

"I think it's clear that conventional fuel has a role to play in the foreseeable future," Soerensen tells me.

"But with the regulatory changes that we see it will become increasingly commercially unviable, at least to run exclusively on conventional fuel. I think that's the reality of it."

The Long Term

When you consider how much change there has been to the marine fuels landscape in such a relatively small time, it seems almost impossible to think about what might lay beyond the current outlook of ammonia, LNG, and methanol.

Still, looking to 2050 and beyond is exactly what the industry is being asked to do, and helpfully Soerensen is able to offer some insight here.

"I think there's a conversation to be had about nuclear, with a potential role for it both as ship propulsion and in the production of green or so-called 'pink' fuels.

"But I think there are many challenges concerning nuclear and they probably go beyond the ones that we see for methanol and ammonia, so it is a discussion to be had in the future.

"I think there could also very well be new technologies. If you look at what's happened in the last five years, there might be options out there that we are currently not aware of that become very viable in five years' time. And that is something we need to be open for as well.

"But to sit and hope for it, and expect something should be developed rather than prepare for what is happening and acting on that? I don't think that's the right way forward.

"If you are going to say, okay, I'm going to wait until that molten salt reactor is ready, then you're not preparing.

"We have an expression in Danish, that you can't see the forest because of all the trees, and I think that's quite relevant here. The world is changing and you need to adapt and prepare for these changes. And you can do that by engaging with people who are knowledgeable partners.

"Again, we are thankfully seeing people reaching out to us and saying, 'What ship should I order?' And I find it very positive that our customers trust us enough to say what do we think they should do, how and where should they build their operations.

"So it's not that some are denying they need to change, but they are rightfully confused about what they should do.

"We believe that we have a role as an advisor there.

"Quite frankly, it's what we do, it's what we want to do, and we see it as our responsibility as well to do."