Introduction
There seems to be a lack of focus on the practical steps and potential financial implications associated with adopting alternative marine fuels to achieve zero emissions in the shipping industry. This research aims to examine the consequences of various fuel options on ship owners and operators in terms of compliance with emerging regulations.
Pathway to zero emissions
Currently, available alternative marine fuels, including LNG, grey methanol, and grey ammonia, are primarily derived from natural gas. However, China also produces methanol and ammonia from coal. These fuels share a common trajectory towards achieving net-zero emissions by transitioning to synthetic or electro-fuels once renewable electricity generation becomes widely available, likely in the mid-century. In the medium term, sustainable biomass-based fuels like bio-LNG and bio-methanol have a crucial role to play.
Although these fuels share a common destination, their starting points differ in terms of greenhouse gas (GHG) emissions. Grey LNG, derived from natural gas, offers immediate GHG reductions of up to 23% on a well-to-wake basis compared to VLSFO. Grey methanol and grey ammonia, however, have higher emissions, with grey methanol being 14% higher and grey ammonia showing a 47% increase compared to VLSFO.
The higher GHG emissions of grey methanol and grey ammonia pose challenges for decarbonization efforts. Achieving emissions reductions equivalent to grey LNG would require blending significant quantities of expensive and potentially scarce green methanol and green ammonia derived from sustainable biomass or renewable electricity. Since grey methanol and grey ammonia, produced mainly from natural gas, are already approximately twice as costly as LNG, the use of these alternative fuels becomes a significantly expensive choice.
Overall, while alternative marine fuels have the potential to contribute to decarbonization in the shipping industry, the varying GHG emissions and high costs associated with certain options underscore the complexities and financial implications of adopting these fuels.
Fuel costs
Considering the available alternative marine fuel options, it is important to assess their potential costs. The Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping (MMMCZCS) has conducted comprehensive research on fuel cost projections for renewable and low-carbon versions of LNG, methanol, and ammonia. The summarized findings are presented in the chart below.
When combining this analysis with long-term average prices for LNG ($9/GJ), grey methanol ($21/GJ from Methanex), and grey ammonia ($23/GJ according to the IEA), the following overview emerges.
- Grey methanol and grey ammonia are at least twice as expensive as LNG and LSFO.
- Bio-derived fuels are significantly more costly – up to 2.5 times more expensive than their grey versions. Over time costs should come down, especially as more emphasis is placed on dealing with global waste issues and realising the benefits of the circular economy.
- Bio-LNG is the lowest cost renewable, or green fuel, significantly cheaper than bio-methanol.
- Blue ammonia i.e., ammonia produced from natural gas using carbon capture and storage, has costs similar to bio-methanol.
- Electro-fuels (green e-LNG, green e-methanol, and green e-ammonia) are five to eight times more expensive than the marine fuels used today. These ratios will fall as the costs of renewable electricity and electrolysis fall but the estimates are that they will still be 2.5 to 4 times more expensive by mid-century.
- Green e-ammonia is potentially the cheapest electro-fuel in the long term. However, there are significant challenges to be overcome before it can be used as a marine fuel relating to the development of propulsion systems, low energy density and major safety issues.
- The costs of green e-LNG and green e-methanol are likely to track each other very closely. It should be noted that this analysis does not consider infrastructure and supply chain investments that must be made for methanol and ammonia. These investments have in large part already been made for LNG.
Various estimates for future fuel costs are available publicly, and although the specific numbers may vary, the overall trends align due to the fundamental principles of physics and chemistry. The implications are evident: green shipping fuels will undoubtedly be considerably expensive. Ship owners, operators, and charterers are likely to invest in these fuels only if compelled to do so by regulatory bodies like the International Maritime Organization (IMO) and the European Union (EU), or if driven by customers aiming to achieve their own voluntary decarbonization goals. The decisions made by customers and consumers will be challenging, as they will need to find a balance between competitive costs and the demands of environmental, social, and governance (ESG) standards and regulatory requirements.
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Source: Sea LNG
