Iron ore miners Down Under see 2024 as key to green shipping momentum

Australian miners responsible for the world's top iron ore production are grappling with how to decarbonize their cargo shipments, and next year could be key on their path to adopting alternative fuels.

Maritime shipping underpins 90% of world trade and is responsible for about 1 billion metric tons of CO₂ emissions yearly, or nearly 3% of global carbon emissions, according to Rio Tinto Group. Transport companies are wrestling with how to meet the International Maritime Organization's (IMO's) shipping decarbonization targets to 2050.

Denmark-headquartered Global Maritime Forum expects industry milestones in 2024 "related to the enabling environment surrounding bulk carriers ... as well as additional ship order and fuel offtake announcements," Anna Rosenberg, the group's decarbonization project coordinator, said in an email interview.

In fiscal 2024, Fortescue Ltd.'s shipping team will evaluate the option of converting its eight large ore carriers to run on green ammonia in the hope that "by developing this technology for our own fleet, it will encourage its adoption in our Scope 3 shipping fleet."

Rio Tinto is introducing nine Newcastlemax LNG dual-fuel vessels to its fleet through mid-2024, which it says will eliminate sulfur oxide emissions, reduce life-cycle carbon emissions by up to 20% and cut nitrous oxide emissions by up to 80%. Four of the vessels have been delivered as of mid-November 2023.

"Decarbonizing the world's shipping industry is a massive task and we do not yet have all the answers," a Fortescue spokesperson said.

'Counting on the Pilbara'

With iron ore shipments out of Western Australia hitting a record high in fiscal 2023 and more expansions underway, decarbonizing shipping fleets will be front of mind for future production plans, Pilbara Ports Authority (PPA) CEO Samuel McSkimming told S&P Global Commodity Insights.

After recently visiting key stakeholders in Shanghai and Singapore, McSkimming said "it's clear that the rest of the world is really counting on the Pilbara to produce these fuels because of its access to large amounts of renewable energy. That's our competitive advantage."

"Deployment, however, is not expected until later this decade. Looking at the developments of vessels and ammonia engines, expected to become available in 2025, testing of the very first bulk carriers running on zero-emission fuels is not likely to happen until 2025–2026," Rosenberg said.

Fortescue successfully converted a four-stroke engine to run partially on ammonia in 2023, with the expectation that "by demonstrating the feasibility of the use of ammonia as a marine fuel, the regulatory environment and classification societies will further embrace and accelerate the adoption of this carbon-free fuel across the broader maritime sector."

Rio Tinto, the world's largest dry bulk shipper, wants to deliver a 40% reduction in shipping carbon intensity emissions from 2008 baselines across its global fleet of 17 owned and 230 chartered vessels by 2025 — five years ahead of the IMO's target. This will aid its First Movers Coalition pledge to reach net-zero emissions from shipping by 2050, a spokesperson said in an email interview.

Yet "today, as a hard-to-abate sector, the widespread adoption of low carbon fuels is challenging when compared to conventional fuels" and will remain so without market-based measures and regulation and "enhanced visibility for infrastructure and fuel supplies," Rio Tinto's spokesperson said.

First movers could reap economic benefits

Shipping decarbonization has gained increased momentum among industry members the past two to three years, Rosenberg said.

"Iron ore bulk shipping is seen as a good first-mover candidate as it offers regular trading routes, making it easier to optimize the use of clean fuels and technologies and — in the case of larger ... carriers like those operating on the Australia-East Asia Green Corridor — economies of scale that will support the early production and offtake of clean fuels," Rosenberg said.

That corridor could help decarbonize the whole shipping sector, according to the GMF's Getting to Zero Coalition. This was formed in 2019 with Rio Tinto and BHP Group Ltd., among others.

Jesse Fahnestock, GMF's decarbonization project director and head of analysis, said the value chain will have to bear the extra costs with support from governments, while in the medium-to-long term participants operating in the Australia-East Asia green shipping corridor "might see real economic benefits from having gone first" to adopt green fuels.

Fahnestock said "companies that have secured their supplies of near-zero-emission fuels, booked their slots at shipyards and trained crews may well be ahead of the game and save significant costs on compliance."

Safe ammonia bunkering is both economically and operationally viable in the Pilbara, according to a 2023 study by Yara International ASA and PPA.

"For many companies, the interests of customers in having low-emission supply chains will increase, and suppliers who can offer green shipping will have an advantage," Fahnestock said. "I can't say we've reached that place with iron ore yet, but it's not hard to imagine that the interests of ... auto manufacturers in greening their supply chains could travel back up the value chain at some point. First movers may be well-positioned when it does."

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