Staff Writer
As the shipping industry faces pressure to reduce emissions, the shift to alternative fuels like LNG, LPG, hydrogen, and biofuels is fraught with challenges, from engine compatibility to significant investments. The urgency is heightened by the upcoming International Maritime Organization (IMO) regulations, effective January 1, 2025, which will require shippers to report their climate impact, affecting 90% of global shipments. ESG ratings will also influence supply chains, potentially impacting major brands.
In this exclusive interview, William Chia, the CEO and Chairman of Banle Group, provides expert insights into the challenges and opportunities presented by the 2025 IMO regulations. He delves into the future of alternative fuels, the barriers that shippers must navigate, and the rising concerns within the industry as the deadline for ESG ratings draws near.
Q: What are the most promising alternative fuels currently being considered by the shipping industry to meet the new IMO emissions regulations? How do these options compare in terms of feasibility and investment required?
Methanol and Liquified Natural Gas (LNG) are currently the most promising alternative fuels being considered by the shipping industry to meet the new IMO emissions regulations. New contracts by number of ships (excluding LNG carriers) over the last 12 months show alternative fuels are now 21 percent of the global fuel market with Methanol at 10 percent of the share and LNG at 7 percent. Currently, less than 1 percent of ships in operation (or .69 percent to be exact) are equipped for alternative fuel, according to DNV.
Currently, less than 1 percent of ships in operation (or .69 percent to be exact) are equipped for alternative fuel, but that’s about to change.
As of June 2024, nearly 16 percent of all ships on order will be equipped with engines to handle alternative fuels. LNG leads the alternative fuel competition with 9.3 percent of market share, followed by Methanol at 4.2 percent of the share of ships with alternative fuel capabilities. The American Bureau of Shipping (ABS) shows the emergence and growth of methanol and ammonia as alternative fuels, and the anticipated growth in the use of the two fuels is expected to increase from 0 percent in 2023 to 42 percent and 33 percent by 2050 respectively.
Liquified Petroleum Gas (LPG) was at 2 percent and Ammonia was at the bottom with 1 percent of the share. Hydrogen has not shown any adoption among alternative fuels, despite its potential and promise as a zero-carbon fuel.
Methanol Feasibility and Investment: Methanol is emerging as a strong contender due to its relatively mature technology and infrastructure. While the initial investment for methanol-compatible engines is higher than for conventional fuels, the overall lifecycle cost can be competitive. Methanol also presents fewer handling and storage challenges compared to hydrogen and ammonia.
Liquified Natural Gas (LNG) Feasibility and Investment: LNG is currently the leading alternative fuel in the market. Its use is supported by well-established infrastructure and technology. The initial investment for LNG-powered ships is higher due to the need for specialized tanks and safety systems. However, the operational cost benefits and lower CO2 emissions make it an attractive option for many shipping companies.
Q: What are the main technical and financial barriers that shippers face when transitioning from traditional marine fuels to alternative fuels like LNG, hydrogen, ammonia, methanol, and biofuels?
Switching to alternative fuels is one of the fastest ways for cargo shippers to lower their emissions but it’s not as easy as flipping a switch. LNG, LPG, hydrogen, ammonia, methanol and biofuels are among the many options cargo shippers can use. Some alternative fuel options aren’t compatible with engines, while others require heavy investments.
In addition, the alternative fuels landscape for the international shipping industry is highly fragmented, with no clear market leader emerging yet. Many shipping companies are experimenting with and hopping between different alternative fuel options, indicating the unpredictable and uncertain nature of the ongoing alternative fuels battle. Without a dominant technology or fuel source establishing itself, the future of sustainable marine propulsion remains unclear and in flux.
Shippers face several technical and financial barriers when transitioning to alternative fuels:
Technical Barriers:
- Engine Compatibility: Not all alternative fuels are compatible with existing engines, necessitating significant modifications or new engine installations.
- Storage and Handling: Alternative fuels like hydrogen and ammonia require special handling and storage due to their hazardous nature and lower energy density.
- Infrastructure: The availability of refueling infrastructure for alternative fuels varies significantly by region, impacting the feasibility of widespread adoption.
Financial Barriers:
- High Initial Costs: The transition to alternative fuels involves substantial upfront investment in new technologies, retrofitting existing vessels, and developing supporting infrastructure.
- Operational Costs: While some alternative fuels may offer long-term cost savings, the initial operational costs can be high due to the current price of these fuels compared to conventional marine fuels.
- Regulatory Uncertainty: The evolving regulatory landscape creates uncertainty for shippers, making it difficult to plan long-term investments without clear guidance on future regulations and fuel standards.
Q: How do you foresee the IMO's 2025 regulations affecting global shipping costs and potentially contributing to inflation? What strategies can shippers employ to mitigate these financial impacts?
Everyone wants to know how these new shipping targets will impact the cost of future goods shipped around the globe. Can we expect the shift to lead to higher fuel prices passed onto the customer? Or will the shift to alternative fuels ignite additional cost savings?
The IMO will decide on a Carbon pricing policy later this year and that will affect the global shipping industry. The final pricing policy is expected to be agreed upon in September or October of 2025, and become enforceable two years later.
The European Union Emissions Trading System (EU ETS) will also influence future prices, while the IMO is finalizing its carbon pricing model for the shipping industry. No fixed prices have been established yet, and some IMO member States suggest a global levy starting at US$150 per ton. The final price will depend on ongoing negotiations with the final price likely coming over the next few months. Ultimately, these two groups will also play a role later this year on the future prices of alternative fuels.
The IMO's 2025 regulations are expected to have a significant impact on global shipping costs, potentially contributing to inflation due to increased fuel and compliance costs.
Strategies for Mitigation:
- Fleet Modernization: Investing in newer, more fuel-efficient ships and retrofitting older vessels can help reduce overall fuel consumption and improve compliance with new regulations.
- Operational Efficiency: Implementing operational best practices such as optimized routing, slow steaming, and regular maintenance can improve fuel efficiency and reduce costs.
- Alternative Fuels: Transitioning to alternative fuels like LNG, methanol, and biofuels can help mitigate the impact of rising conventional fuel costs and meet regulatory requirements.
- Carbon Pricing: Shippers should prepare for potential carbon pricing mechanisms by investing in technologies and practices that reduce their carbon footprint, thereby lowering their exposure to carbon taxes and levies.
Q: What role does Banle Group play in facilitating the transition to alternative fuels for the shipping industry? How are your ports and refueling services adapting to support the use of these new fuels?
Banle Group is at the forefront of facilitating the transition to alternative fuels in the shipping industry. Since 2023, Banle has obtained ISCC EU and ISCC PLUS certifications, demonstrating its commitment to sustainability and compliance with international standards. The group has actively promoted the use of biofuels and other alternative fuels through several initiatives:
- Biofuel Operations: Banle completed its first B24 biofuel supply operation in Hong Kong in July 2023 and followed up with the first biofuel bunkering in Yantian, China, and Port Klang, Malaysia. These initiatives mark significant milestones in expanding the availability and use of biofuels in key ports.
- Infrastructure Development: Partnered with biofuel suppliers, Banle plans to support biofuel bunkering in major ports, ensuring a stable supply of alternative fuels in Malaysia, Hong Kong and South China such as Shenzhen, Guangzhou to meet the needs of shipping companies.
- Safety and Compliance: The group provides comprehensive safety data sheets (SDS) and guidelines to ensure the safe handling and use of biofuels. It also offers support in calculating the conversion factor (CF) for assessing a vessel’s Carbon Intensity Indicator (CII) rating.
Q: How important is it for cargo suppliers to align with the new IMO regulations and improve their ESG ratings? What are the potential risks for companies that fail to meet these standards?
It is increasingly crucial for shipowners to align their operations with the new IMO regulations and improve their ESG performance, particularly their Carbon Intensity Indicator (CII) ratings, which has been in effect since 1 January 2023.
Aligning with the new IMO regulations and improving ESG ratings is crucial for cargo suppliers for several reasons:
- Reputation and Market Position: Adhering to regulations demonstrates a commitment to sustainability, enhancing a company’s reputation and market position. Companies that fail to comply risk significant reputational damage, which can impact their ability to secure future business.
- Financial and Operational Risks: Non-compliance can lead to penalties, operational restrictions, and even bans from certain ports. This can severely disrupt business operations and result in substantial financial losses.
- Competitive Advantage: Improving ESG ratings can reduce fuel consumption and operational costs, positioning companies favorably for future contracts and charters. Charterers and cargo owners increasingly consider ESG performance in their selection processes.
Potential Risks:
- Penalties and Restrictions: Companies that do not achieve the required CII ratings may face operational penalties or bans from specific ports, impacting their ability to conduct business.
- Financial Implications: Non-compliant companies may face higher financing costs as lenders and investors factor ESG performance into their risk assessments. This can lead to challenges in securing loans or investments.
Q: Given the diverse range of ports in the Asia Pacific region and beyond, how are different regions preparing for the implementation of these alternative fuels and the new regulatory requirements?
China:
- Biofuel Supply: Major ports like Zhoushan, Dalian, Guangzhou, and Shenzhen have completed their first biofuel supply operations, indicating significant progress in adopting alternative fuels.
- Methanol Bunkering: China's first operational methanol fuel bunkering vessel completed a major operation at Yangshan Port in April 2024.
Singapore:
- Guidelines and Incentives: The Maritime and Port Authority of Singapore (MPA) has established guidelines for biofuel supply and offers incentives through programs like the Green Ship Programme and Green Port Programme to promote the use of alternative fuels.
- Collaboration and Training: Singapore is collaborating with industry leaders to promote the safe use of zero-carbon fuels and provide maritime training programs for seafarers.
Q: What advice would you offer to shipping companies and cargo suppliers as they navigate the upcoming IMO regulations and the shift towards sustainable fuel options?
- Monitor and Plan for Evolving Regulations: Stay updated on the implementation timelines and requirements of regulations like the IMO sulfur cap and future greenhouse gas targets. Develop robust compliance strategies and ensure your fleet and operations are prepared to meet new standards.
- Invest in Fleet Modernization and Fuel Transition: Evaluate the feasibility of retrofitting existing vessels or acquiring new ships designed for alternative fuels like LNG, methanol, or ammonia. Collaborate with shipyards, engine manufacturers, and fuel suppliers to understand the technical and logistical requirements.
- Communicate Sustainability Commitments: Develop a clear ESG strategy and regularly report on progress to stakeholders. Transparency and accountability are key to gaining trust and securing business.
Q: Looking ahead, what future trends do you anticipate in the marine fuel industry and how might these trends influence global shipping practices and sustainability efforts?
- Tightening Emissions Regulations: The IMO is implementing increasingly stringent emissions standards, driving the industry to adopt cleaner fuels and technologies.
- Adoption of Alternative Fuels: The use of LNG, biofuels, methanol, ammonia, and hydrogen is expected to increase, significantly reducing greenhouse gas emissions from ships.
- Advancements in Vessel Efficiency: Investments in new vessel designs, propulsion technologies, and operational practices will help reduce fuel consumption and emissions per ton-mile of cargo transported.
- Increased Investment in Port Infrastructure: Ports will upgrade facilities to accommodate alternative fuel bunkering, shore power connections, and other sustainability-focused technologies, enabling ships to access cleaner energy sources during port calls.
These trends will collectively drive the shipping industry towards greater sustainability, reducing its environmental impact and enhancing its role in global trade.
William Chia has been the Chairman and Chief Executive Officer since the inception of Banle Group. He possesses over 16 years of experience in the oil and gas-related industries and business management, steering the Group’s business strategy and deployment. He received a Bachelor’s degree in Business Administration Management from Oklahoma State University and a Master’s Degree in Public Administration from the University of Management & Technology.
