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2023: A Year of Contrasts in Shipping, says BRS in its Annual Review

Last year was one of contrasts for shipping market participants as different sectors were impacted upon in different ways in the wake of boiling geopolitical tensions and the sector’s ongoing efforts to decarbonize. ‘Humankind has a knack for self-inflicting wounds, still there is nothing that we cannot fix with science, technology, common sense, goodwill and determination’ BRS notes, in their Annual Review of Shipping and Shipbuilding Markets released yesterday.

The BRS Annual Review takes stock of where shipping markets now, and the paths which they are on across the short and longer-terms.

As usual, the Review provides specific analysis of all the major sectors: Shipbuilding, Dry Bulk, Tanker, Chemical, LNG, LPG, Offshore, Ship Finance, Carbon Markets, Cruise, Containership, Car Carrier, MPP and Ro-Ro. This year, the Review includes a chapter discussing challenges and opportunities in offshore wind markets.

“Humankind has a knack for self-inflicting wounds: epidemics, inflation, war, pollution, climate change, pain and suffering from another age… we used to think. Still there is nothing that we cannot fix with science, technology, common sense, goodwill and determination.

One topic on which there should be a clear consensus in the shipping industry is the banishment of heavy fuel oil (HFO). Although HFO replaced coal as a fuel sometime in the 20th century, this ‘dirty’ fuel has become increasingly vilified in the 21st century as the industry’s focus has moved towards reducing its environmental footprint.

HFO is a danger to human health as it releases during its combustion SOx, NOx, heavy metals, particulate matters, black carbon and chemicals (aromatic hydrocarbons, benzenes) known to cause cancer. As such, no national authority allows it to power landbased forms of transport. It is only used in the shipping industry due to its attractive price and the sector’s lower environmental standards set out by the international shipping regulator, the International Maritime Organization. These factors combined with wide availability have seen the shipping industry become addicted to HFO. Regardless of the practical and economical convenience of HFO, the industry must escape its toxic grasp. At a time when many shipowners are trying to find cleaner alternatives based on molecules such as LNG (CH4) or methanol (CH3OH) or LPG (C3H8 and C4H10), including some molecules (methanol for instance) that can be manufactured using renewable electricity (solar, wind, hydro) and existing CO2, shipping regulators can no longer pretend that the environmental footprint of HFO is comparable with the alternatives.

It must be admitted that the continued use of HFO will slow down the transition to cleaner fuels at precisely the point in time when it should be accelerated. 2030 and 2050 are ‘tomorrow’. We cannot simply expect to hit carbon reduction targets right on these dates without a targeted plan and corresponding action. In 2022, we saw too many dual fuel vessels switch back to HFO as extremely strong LNG prices eroded the economics of LNG propulsion. This turn of events was a huge step back as dual fuel main engines are less efficient at using only HFO compared to specialized main engines resulting in higher consumption. In addition, HFO requires heating, not to mention additional fuel consumed to operate scrubbers. These additional demands add up to an extra 3 to 5 tonnes of HFO consumed on the largest vessels, which could otherwise be saved.

This race to the bottom needs to be stopped and the playing field levelled to enable cleaner molecules to compete with the economics of HFO. For example, methanol reduces emissions of SOx, NOx, CO2 and fine particles by 90%, 60%, 25% and 85%, respectively, compared with HFO. Under the current regime, HFO will always be cheaper than cleaner, high-grade fuels simply because it is a toxic residue that is left at the end of the refining process. Although the demand for HFO should eventually decline, we could also envisage a future scenario where shipowners will be paid to take a byproduct that nobody else wants or can use, something already seen in the recycling industry.

The goal of the 2015 COP 21 meeting was to limit global warming to a level below 2 degrees, preferably 1.5 degrees, compared with preindustrial levels. According to a forecast made in December 2022 by the UK’s Meteorological Office, 2023 could be one of the hottest years on record with the average global temperature forecast to be about 1.2 C higher than before humans started to drive climate change. The IMO’s initial greenhouse gas (GHG) strategy envisaged a reduction in the carbon intensity of international shipping of at least 40% by 2030, and 70% by 2050, compared with 2008; and that the total annual GHG emissions from international shipping should be reduced by at least 50% by 2050 compared with 2008. The strategy includes a specific reference to “a pathway of CO2 emissions reduction consistent with the Paris Agreement temperature goals”.

At the end of 2022, a bit less than 30% of the worldwide shipbuilding orderbook of 3,600 newbuildings (actually 1,047 ships) and a bit more than 22% of the worldwide shipbuilding orderbook excluding LNG carriers was dual fuel and due for delivery by the end of 2025.

This represents about 350 dual fuel ships or about 250 dual fuel ships per year if we exclude LNG carriers that have always been propelled on LNG. At this pace, it will take more than 100 years to have a full dual fuel fleet in place, further assuming that it will fully meet the 2050 targets.

There is an urgency across the world to seriously engage in the fight against climate change in which every industry is involved and bears its own responsibility. The shipping industry need to take drastic solutions and focus on the existing fleet. Banning HFO in an orderly way so as to take care of everyone’s interest would be a sensible solution. It is already banned in Arctic and Antarctic areas. Other methods to reduce shipping’s environmental footprint could be adopted today, notably embracing slow steaming (a reduction of 20% of speed would result immediately into a 50% drop in CO2 and GHG emissions). Meanwhile, it is evident that increased resources must be diverted to longerterm solutions such as the development of carbon neutral e-fuels and the development of green corridors where cleaner fuels would be available, and which would be characterised by stricter environmental legislation and more efficient logistics optimising ship use.

That is why the International Maritime Organization should also follow in the footsteps of the European Union and develop a carbon tax for shipping with a reasonable amount of levy per ton of CO2 to become the international norm and a way of levelling the playing field between HFO and cleaner fuels.

Back in 1987, a worldwide ban on ozonedepleting chemicals was agreed under the Montreal Protocol to save the ozone layer that absorbs most of the ultraviolet radiation from the sun. This resulted in the banning of chemicals such as chlorofluorocarbons. Human action to save the ozone layer has worked as hoped, and according to a recent UN report it may recover in just decades.

The shipping industry could show its leadership now by phasing out HFO and in doing so make history!”

François CADIOU, Chairman
Source: BRS

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