Regulatory framework, flexibility key to navigating shipping decarbonization: DNV GL

London — The legal environment, and not just price, will determine future fuels for shipping with a stricter policy framework key to a shift away from fossil fuels, consultancy DNV GL said in its Maritime Forecast to 2050: Energy Transition Outlook.

"It is hard to identify clear winners among the many different fuel options across all scenarios, but e-ammonia, blue ammonia and bio-methanol are the most promising carbon-neutral fuels in the long run in a decarbonization trajectory," the report said.

DNV GL expects the use of fossil fuel-based 0.5%S fuel oil -- the current prevalent fuel -- marine gasoil and LNG to be in rapid decline by the middle of the century or even phased out. Carbon neutral fuels' uptake should increase noticeably in the mid 2030s-2040s and then account for 60%-100% of the fuel mix by 2050, the consultancy said.

There are a number of choices before shipowners looking to invest in vessels that could still be use in 25 years' time, and there are risks to backing the wrong horse, it said.

"Picking the wrong solution can lead to a significant competitive disadvantage. Planning for fuel flexibility could ease the transition and minimize the risk of investing in stranded assets. A structured scenario-based approach to future-proofing vessels will help in managing the decarbonization risks," DNV GL said.

Flexibility will be key to shipowners reducing their downside risk, and using fuel-flexible or fuel-ready solutions onboard could help in this regard, the consultancy said.

"Uptake of carbon-neutral fuels will not happen until a clear and robust regulatory framework is put in place. To drive the development of new technologies, the framework must ensure global availability of large volumes of carbon-neutral fuels; enable their safe use; and, incentivize their uptake while retaining a level playing field," the report said.

Some way to go

The uptake of LNG has been increasing of late and methanol so far is in its shadow. LNG has around 400 tankers on the sea compared to a meager 30 being run on methanol.

The International Maritime Organization completed draft interim guidelines for the safety of ships using methanol as fuel in 2019 and was expected to get the greenlight in May, but the final decision has now been delayed to November due to the coronavirus pandemic.

The technical groundwork is already being put in place as it is felt charterers will need to know how to bunker it and transact it based on an approved industry standard, said Chris Chatterton, chief operating officer at the Methanol Institute.

In S&P Global Platts Analytics' long-term outlook, non-petroleum marine fuels account for 11% of total bunker demand by 2040, with almost all of this accounted for by gas-based fuels.

"Fossil LNG gains a significant share until regulations tighten in 2030 or 2040 depending on the decarbonization pathway, when we see bio-MGO, e-MGO, bio-LNG and e-LNG used as drop-in fuels for existing ships, and bio-methanol, blue ammonia or e-ammonia for newbuilds and some retrofits, " DNV GL said.

"Although ammonia and methanol dominate the fuel mix in 2050, we also see that bio-LNG, e-LNG, bio-MGO and e-MGO have a limited but stable share for newbuilds, indicating that these fuels are not only transitional fuels but a viable alternative for some ships," the consultancy said.