- For a century, the world’s oceangoing fleet has been powered by crude oil.
- The 50,000 ships plowing the high seas consume more than five million barrels every day.
- One-twentieth of all oil ends up burned in a ship engine. Those days may soon be ending.
That’s because the world’s merchant ships are about to undergo the most profound revolution they’ve seen since the dying days of coal-powered steamships. Rules being quietly hammered out by the International Maritime Organization or IMO are about to change the industry beyond measure.
Victory For Climate
It would be nice to be able to report this as a victory for climate. New energy technologies for power stations and vehicle engines are the biggest drivers of decarbonization in the world today. After decades of resistance, the IMO is finally implementing measures to reduce shipping’s carbon footprint. It wants to cut emissions intensity to 40% below 2008 levels by the end of this decade, with total carbon pollution by 2050 falling to half of 2008’s levels.
That sounds like good news, but the shipping industry is notoriously conservative and the IMO tends to be dominated by the industry it regulates. The regulations at present are largely voluntary, and in line with what shipowners are already doing for cost-management purposes.
Even so, the fueling of ships is going through a revolution — or rather, multiple overlapping ones. Three years ago, almost all were powered by heavy fuel oil or HFO, a sludgy refinery byproduct that often costs as much as a third less than crude. It’s possible that many of the broader problems in the oil market to this date can be traced back to that decision. It immediately added more than one million daily barrels of diesel demand in a market that typically churns out about 27 million barrels a day, and it has often been irrepressible diesel demand pulling up prices for crude over the past year.
Faced with soaring costs to power their fleets, shipowners are rapidly switching to alternatives. Some 98% of car carriers on order are now LNG-powered, along with 49% of cruise ships, 32% of bulk carriers, 28% of tankers and 26% of container ships, according to a study in 2021 by TotalEnergies SA.
LNG’s dominance isn’t a huge win in emissions terms. While its carbon footprint is better than crude-oil products, that performance can deteriorate a lot if gas escapes without being combusted — a substantial problem with most marine engines. But the rising cost of diesel is making other fuels more attractive, too. All of that is going to start chipping away at shipping’s share of oil demand — but the holy grail for decarbonization efforts is to plug the industry into the emerging hydrogen economy.
By using the IMO to enforce some unity on the market and punish free riders, the ship owners with the largest fleets stand a good chance of passing those costs on, helping to further entrench their positions. AP Møller–Mærsk A/S, the biggest container line, is staying aloof from the shift to LNG-fueled ships, wagering the industry will end up shifting straight to zero-carbon fuels.
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