AET Tanker Holdings, a part of Malaysia's MISC Group, is upbeat about LNG's prospects as a viable fuel solution to tackle maritime decarbonization as international shipping's environmental emissions come under the scanner.
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"AET sees LNG as the most viable fuel solution available today, and possibly with technology advances, it will be part of the fuel solutions longer-term, well past 2030," Rajalingam Subramaniam, president and CEO, AET, said in an interview during the 37th Asia Pacific Petroleum Conference, or APPEC 2021, organized by S&P Global Platts from Sept. 27-29.
In the past four years, AET has made strategic investments of $2 billion in new assets, of which about $1 billion was invested in LNG dual-fuel assets across its vessel segments, Subramaniam said.
The company currently owns and operates 70 tankers, which include Aframaxes, Suezmaxes, VLCCs, Dynamic Positioning Shuttle Tankers (DPSTs), LRs and chemical tankers, and has an orderbook of 11 vessels with deliveries scheduled between 2022 to 2023.
"Currently, we have three Aframaxes, two DPSTs operating and five VLCC newbuildings on LNG dual-fuel. We are working together with key clients to further rejuvenate our fleet with dual-fuel assets," Subramaniam said.
AET's investments in LNG dual-fuel solutions underscores its commitment to reduce the carbon footprint of shipping using the best fuel solution immediately available in the market with the existing and growing infrastructure, Subramaniam said.
Despite some challenges on the limitations of the existing technology and issues such as methane slip, LNG offers numerous advantages, it is a proven and mature technology, is readily available, has a rapidly growing bunkering network, and emits about 20%-25% less CO2 than conventional marine fuels when providing the same amount of propulsion power, Subramaniam said.
"We acknowledge the methane slip debates from 'well to wake', and we are investing in technologies to reduce the methane slip onboard – where we can control our tank to wake solutions," he said.
AET was also contemplating other solutions for decarbonization and "will select the most effective long-term solution for zero-carbon vessels," he said.
MISC Group is already advancing the Castor Initiative – a joint development project to develop zero-carbon ammonia-fuel tanker – that is aligned with the International Maritime Organization's 2050 goals.
So, there will be multiple pathways to achieve decarbonization, Subramaniam said.
To create a truly sustainable decarbonized global trade network and in an appropriate timeframe to meet the IMO GHG 2030 targets, all participants must partner and work together toward a common goal, Subramaniam said.
Meanwhile, market-based measures are also needed. "We all need to play our part now and not wait until the last possible moment."
"I am a strong supporter of carbon tax centrally coordinated and equitably proportioned to users of the products and services," Subramaniam added.
The revenues raised from the carbon tax must be reinvested into further maritime and related research and development to advance low-carbon technologies to support the industry's decarbonization goals, Subramaniam said.
According to Subramaniam, the market for "carbon neutral" shipments is still in its infancy.
There must be more transparency when it comes to offsetting emissions from fossil fuels with carbon credits and priority should be given to reducing emissions directly with carbon crediting playing a supplementary role in reducing emissions, he added.
"I believe LNG molecules and crude barrels pricing would also be differentiated based on the CO2/GHG emissions per unit produced – that would create the commercial reasons for better emissions standards in the production process, which will further reduce the CO2/GHG footprint in a sustainable manner whilst the world adjusts to renewable energy pivot in a transitionary manner," Subramaniam said.
Tanker outlook as pandemic drags
As far as the outlook for crude oil tankers was concerned, Subramaniam noted that tonnage oversupply coupled with reduced demand, due in part to the COVID-19 pandemic, had depressed freight rates.
A standard VLCC must earn around $25,000/d to break even, BIMCO said in a report recently. The last time average VLCC earnings were above this level was at the end of December 2020, it said.
Daily VLCC earnings on the key Persian Gulf-North Asia routes are currently around $4,000 in the spot market, but they were suffering losses until as recently as a week ago, according to brokers' estimates. The average daily losses so far this year in the spot market are almost $3,000 for non-scrubber fitted VLCCs, which use VLSFO.
However, brokers pointed out that one year time-charter rates for such non-scrubber-fitted VLCCs were around $20,000-$25,000/d.
LNG carriers have fared better, with Platts Sept. 28 assessing the rates in the Pacific basin at $61,000/d.
Some positive signals coming from a gradual increase in production and enhanced refinery utilization herald a gradual improvement for the tankers segment in the fourth quarter of 2021 and into 2022, Subramaniam said.
High newbuilding prices, the IMO EEXI/CII legislations coming into force in 2023, oil demand improvements forecast back to pre-pandemic levels in 2022, and a longer tonne mile demand equation are key to sustainable improvements in the tanker market.
Meanwhile, there needs to be more consolidation in this industry among progressive owners and shareholders to create further positive pivot, with increasing environmental, social and corporate governance demands in the maritime industry, he added.