Maritime decarbonization requires $2 trillion spending on green fuels: Maersk

Maritime decarbonization could require $2 trillion in investment in green fuels production facilities between now and 2050, a senior executive of shipping company A.P. Moller Maersk said Nov. 22.

In the company's virtual ESG Investor Day event, Maersk's head of decarbonization Morten Bo Christiansen made the rough estimate based on the capital needed to build out the facilities and associated renewable energy capacities.

Christiansen derived the figure from the required investment to decarbonize Maersk's fuel supply; to eliminate greenhouse gas emissions from the container shipping giant's fleet, he said that $100 billion would be needed to construct production facilities with a total output of 20 million mt/year of green fuels.

"Energy infrastructure is just a very large, large number, and this is no difference," Christiansen added.

The International Maritime Organization, shipping's global regulatory body, has aimed to halve emissions from cross-border shipping by 2050 from 2008 levels, but some environmentalists and members states are calling for full decarbonization.

For Maersk itself, the company targets to have 25% of its seaborne cargo transported by green fuels by 2030 before achieving net-zero emissions by 2040. Company executives said the required investment for green fuels production would be energy companies' capital expenditures rather than its own, and that Maersk would offer long-term procurement contracts to facilitate such investment.

"It's not our mission in life to become an energy producer," Maersk CFO Patrick Jany said. "We just want to enable the source of supply at scale, which allows us to have green fuels at reasonable costs."

Platts, part of S&P Global Commodity Insights, assessed bunkering costs for oil-based marine fuel with 0.5% sulfur – the most used bunker fuel currently – at $12.854/Gj and costs for fossil-based methanol at $16.270/Gj in Rotterdam Nov. 21.

The current methanol supply is generally produced from fossil fuels, and green methanol production is very small. Christiansen said the carbon-neutral fuel would cost Eur1,500/mt ($1,541/mt).

"Right now there is a very small market for green methanol," Christiansen said, adding that the prevalent price is far above what the shipping industry is willing to pay.

Term deals

Based on company announcements, Maersk has signed collaboration agreements with eight companies to secure at least 1.53 million mt/year of e-methanol and bio-methanol later this decade.

Aside from offering stable cash flows to fuel producers, which could trigger more investment in supply facilities, Christiansen said Maersk's deals also aim to secure green methanol in view of rising demand from shipping and other sectors.

"When we take those positions with long-term offtake agreement, we at least know our exposure then we can manage the risks," he added. "We will not stop here. We will continue to engage with the market."

In a typical week, two to three project developers from the energy, chemical or industrial gas industries would approach Maersk for potential green fuel supplies, Christiansen said.

"The market is really coming to life ... We actually have right now more than 30 projects under valuation at early stages," he added.

Maersk has 19 containerships capable of running on methanol and oil-based fuels on its orderbook that will be delivered in 2023-25. The company estimated it would need around 750,000 mt/year of green methanol to power the vessels.

Looking forward, the company expects its green fuels requirements to increase as it plans to further decarbonize its fleet.

Partly because the dual-fuel ships cost 10%-15% more than conventional newbuilds, Maersk estimated an additional $1.5 billion in capex for green investments in 2022-2025. This would push up the group capex by no more than 5% in 2022-2023 and 10% in 2024-2025. An extra $5 billion in capex is required to meet its 2030 target, Maersk added.

"We will have a little bit of more capex coming in the next few years, but nothing that really disturbs," CEO Soren Skou said.

Skou added that Maersk ordered dual-fuel ships as it is not certain of green methanol supply. Once the company is confident of securing the green fuel by 2025, its future newbuild orders could be just for methanol-powered vessels, Skou added.

Green fuels

Before green methanol becomes more available, Maersk plans to increase the usage of drop-in biodiesel between 2022 and 2024. To meet demand from environmentally conscious customers, the company's biofuels consumption increased to 82,000 mt in 2021 from 32,000 mt in 2020.

However, the trend will be reversed later this decade when more green methanol production capacity comes online, Christiansen said.

"When the methanol becomes available ... we will in all likelihood limit the use of biodiesel," he said. "The methanol pathway will be cheaper than biodiesel and also more scalable."

Maersk also anticipates that ammonia would become a green fuel for shipping, with the first small ship powered by the fuel to hit the waters in 2026 and the first mid-sized and large vessels in 2029-2030.

"It will only be able to scale towards the end of this decade," Christiansen said, adding that ammonia will be "a great fuel" if technical challenges can be overcome.