INTERVIEW: Oceanly sees green bunker switch hamper climate efforts without energy savings

Shipping companies and regulators could worsen climate change by focusing too much on sustainable marine fuels during their decarbonization process rather than energy savings, maritime technology firm Oceanly's general manager, Frederik Lerche-Tornoe, said in a recent interview with S&P Global Commodity Insights.

The EU and International Maritime Organization are introducing new regulations to limit greenhouse gas emissions from ship operations this decade as initial efforts to achieve net-zero shipping by 2050. Analysts said a transition to "green" marine energy is needed for deep decarbonization.

A growing number of shipowners have started to invest in alternatives to conventional, oil-based bunkers, but Lerche-Tornoe warned the caveat lies in distributing renewable electricity amid rising project costs to an industry where the scope of decarbonization is smaller than others.

Based on Oceanly's analysis of IMO data, 5,500 TWh of renewable energy is needed to produce 400 million mt of sustainable fuels to fully decarbonize shipping, whose GHG emissions account for 2.5%-3% of the global total.

However, the same amount of electricity can be used to replace the output of coal-fired power plants whose GHG emissions make up 15.2% of the world's total, according to Oceanly.

"We don't believe that the general maritime industry is focusing enough on energy saving. Everybody is talking about the alternative green fuels," Lerche-Tornoe told Commodity Insights. "We believe that's a mistake."

While also seeing the essential role of sustainable fuels on the journey to net-zero shipping, Lerche-Tornoe, whose company provides energy efficiency-enhancing software, suggested shipowners should invest in energy savings before switching to sustainable fuels.

"One doesn't exclude the other," said Lerche-Tornoe, adding that better efficiency could help shipowners as green fuels tend to be scarce and expensive.

Return on investment

Shipping companies have a variety of energy-saving products to choose from, including voyage optimization software and wind-assisted propulsion. Consultancy Ricardo has estimated that some, like air lubrication or Flettner rotors, could cost $3 million or more.

However, their supporters argue that shipowners could reduce fuel costs by running more efficiently now and that payback periods could shorten further when green fuels are consumed.

The monthly average delivered price for 0.5% sulfur marine fuel oil, the most prevalent bunker type, was $12.595/Gj in Rotterdam last month, according to data from Platts, part of Commodity Insights.

Gray methanol was priced at $18.511/Gj on average, and industry estimates suggest sustainable methanol could be at least two times more expensive. Renewable ammonia for delivery into Northwest Europe on a cargo basis stood at $49.841/Gj in September.

"We [can] reduce the energy consumption of a ship to be as optimal... as possible. So when we then roll out the alternative fuel, we need to use as little of it as possible," Lerche-Tornoe said.

Regulatory drive

For the near term, the IMO has aimed to cut life-cycle GHG emissions from international shipping by 20%-30% before the end of this decade after targeting a 40% reduction in carbon intensity of transport work from 2008 levels.

Lerche-Tornoe suggests there is much room for improvement even for the earlier target, as most shipowners achieve around 10%-30% improvement in their energy efficiency in the projects his company has worked on.

Existing ships could save more fuel via retrofits involving new paints and other works, while just 10 of 32 newbuilds his company worked on recently have optimal eco-ship design, according to Lerche-Tornoe. Roughly half of the rest are willing to adopt efficiency enhancement measures.

"Compared to 2008, we could probably reach much more than 30% with known technologies," including wind sails and bulbous bow optimization, Lerche-Tornoe added.

In 2023, the IMO introduced the Carbon Intensity Indicator for the 2030 carbon intensity target, assigning a rating from A to E to each ship based on its voyage and fuel consumption data.

But shipping and fuel industry organizations, including BIMCO, have said the methodology needs to be revised to better reflect trade conditions, while environmentalists have criticized its lack of punitive measures.

"The problem today is that the regulation is not focusing enough on energy saving," Lerche-Tornoe said, while agreeing that CII would need to be revised to be more effective.

While the owner of a ship rated D or E, which are the worst ratings, would need to propose fuel efficiency improvement measures, the IMO has not explicitly stated whether the ship would be banned from trading if the proposal fails to yield concrete results.

"You're not going to get anybody to really move unless there is that kind of enforcing of the regulation," Lerche-Tornoe said.

Member states of the IMO, a UN agency tasked with regulating shipping, have started to identify flaws in the CII regulation and are scheduled to complete the review by the end of 2025.