IMO’s net-zero ‘breakthrough’ comes with caveats

Investing in the future

Despite this uncertain landscape, shipowners have been investing at significant levels in the green transition for over a decade in newbuildings equipped with dual-fuel propulsion that can use alternative fuels.

As of 1 June, 46% of the ships on order at shipyards by tonnage are alternative fuel capable (not including LNG carriers), according to Clarksons Research.

Data from the ship broker indicates 756 vessels in the global fleet and 683 on order are LNG dual-fuel capable (excluding LNG Carriers), 63 in operation and 334 on order are methanol capable, four in operation and 45 on order are ammonia capable, and 697 in operation and 503 on order have batteries.

“It doesn’t make sense to make major capital investments”

There is also chunk of the fleet in operation or on order that are alternative fuel ‘ready’, meaning the owner has taken some steps to plan for the ship’s possible conversation to a lower carbon intensity fuel. This could simply mean designing a ship with extra space to accommodate fuel tanks, piping and fuel gas supply systems.

Clarksons data shows 854 vessels in operation and 940 on order as being alternative fuel ‘ready’. Within the global fleet there are 577 LNG-ready ships and 154 on the orderbook, 304 ammonia-ready, 633 methanol-ready and 16 hydrogen-ready vessels on order, with some vessels having ‘multi-fuel’-ready status.

Mr Ørbeck-Nilssen pointed out that limited availability at shipyards will have owners waiting a long time for the delivery of a dual-fuel newbuildings. “If you decide now, you might get your new vessel in three years’ or even four years’ time, which is quite a significant bet on the future,” he observed.

Drive to decarbonise

Putting aside current headwinds created by the uncertainty around alternative fuels, trade wars and geopolitical unrest, Mr Ørbeck-Nilssen sees a strong drive for decarbonisation continuing. “An owner must look beyond this year and further into the future. There is not one answer that fits everyone. Shipowners must look at their fleet size, where their vessels are trading, and other options besides fuel choices,” he said. “It hasn’t become easier. If MEPC 83 is adopted in October, we will have more certainty there.”

But the regulation’s adoption will spur more questions. Some owners will still be slowed by the complexity of the decarbonisation challenge, while others will meet it head on. “It will be more about lifecycle assessments, details on how this would work, pooling arrangements, and more,” he said.

One of Mr Ørbeck-Nilssen’s biggest concerns is around the global economic downside risks, and how that they might influence global trade and shipping. “It’s still interesting to be shipping, so uncertainty will remain part of the equation. If you look to the discussions at the latest IMO meeting, there were those that wanted more rapid trajectories and those who wanted to delay it. But what we saw was a compromise between the two. When everyone has digested this a bit, they probably will realise that it makes sense to compromise.”

Another worry is the timeline for global shipping to meet IMO’s GHG reduction targets. Clarksons projects that only 20% of the global fleet (up from 8% today) will be capable of operating on alternative fuels by 2030.

“I’m concerned that around 92% of the existing fleet still runs on conventional fuels,” said Mr Ørbeck-Nilssen. “We can do a lot with energy efficiency. But as vessels near the end of their lives, it doesn’t make sense to make major capital investments.” He highlighted the role carbon capture can play in helping to reduce the carbon footprint of the existing global fleet.

“It makes a lot of sense for the sailing fleet. So, it’s not all about the new fuels and where they can be accessed, but also about what energy efficiency measures can be applied, and where we can capture carbon, discharge it in some key ports, and manage the crediting system in a good way,” he concluded.