Alternative fuels and sustainability: a discussion for the future

The following is a transcript by the Oil & Gas IQ Editor of a discussion recently attended covering the proliferation of alternative fuels in the build up to the 2020 sulphur cap.

Speakers are as follows:

Peter Keller, Executive Vice President, Tote Inc.

Tom Strang, Senior Vice President, Maritime Affairs, Carnival

Sjaak Klaap, VP Business Development, Spliethoff

Yves Bui, LNG Project Director, New Building Department, MSC

Paul Taylor, Global Head of Shipping & Offshore, Societe Generale CIB

Quotes have been edited for brevity and clarity.

SK: It’s nice to see so much interest in LNG. We started with shipping in 1946 with a single vessel but have now expanded into what we are today. We have vessels with Spliethoff, Biglift, and Sevenstar Yacht Transport, and of our whole fleet – only 0.0001 per cent is not on liquid fuel (including LNG). LNG is indeed the fuel of the future – I mean, we are 99.9 per cent on liquid fuel. All we need to do is to get more customers on board.

PT: As a banker, perhaps my approach is a little different. These ships have such a huge role to play in IMO 2020 – firstly in terms of doing the right thing – we have a responsibility to lobby the sector, support our clients, and innovate. People take 60,000 commercial ships on the waters today, and we actually have a very strong voice in the global banking economy to enforce change. So far, we have committed $100 million to change.

We want to make huge changes – not just in lending, but in lobbying. We are members of the CLNG consortium – we are the first bank to join, but we don’t want to be the only one any longer.

LNG is a key area for us – not just as a fuel, but across the chain, and across banking.

PG: Balearia is the leading shipping line for passengers and services to the Balearic Islands – and also Spain, Morocco, Algeria, the United States and Bahamas. From November 2018, we started a route from south Spain to the Canary Islands and we are opening more and more routes. LNG as a fuel is a major commitment both in an economic and profitable area, but also compliance. We are also undertaking six LNG retrofit projects.

PK: It is really important that this infrastructure continues to develop because if we cannot bunker, we cannot refuel, and LNG cannot grow. A lot of people keep talking about the economics of LNG, and as a recently retired ship owner – we do in fact look at the environmental benefits and try to put a financial bias onto it. At the end of the day, this industry needs to do the right thing – this is the way the world is going, whether we like it or not.

So, what are the other alternatives we see looking ahead 10, 20, 30 years? What do we see that is out there? What do we see that’s out that that’s viable?

TS: It is a good question – we see a lot of questions about hydrogen, ammonia – and we don’t know. Most of us know LNG as a fuel that meets and exceeds all regulations and demands. When it comes to the carbon discussion, clearly all of us know that LNG will have a significant role to play. As we then move to 2050 and on to zero per cent emissions, and for all its great performance, LNG… let’s say we are looking at alternatives for the future. Is it hydrogen? Ammonia?

One thing I will say – if you thought LNG was challenging, look at ammonia. It kills people if released in an uncontrolled manner. Hydrogen is another order of magnitude – its functional pressure for one thing. But I am confident that we will triumph.

One thing that I always see in these discussions is ‘what is the availability of this in the supply chain’. It has always been a challenge. Can you imagine what it would be like getting a volume of hydrogen and ammonia to places like the Canary Islands in a volume that is usable?

Clearly we see that LNG has a role to play – it has the best-in-class performance that we have seen to date. We can also see other pathways – biomethane, gasification of waste, liquefaction of that.

If I look at deep sea shipping, at large ships, I simply don’t see a solution there yet.

We have a number of ships that are difficult to retrofit so we have to embrace alternative tech. As we move into the future, where are we going to see LNG fit in?

We have the largest fleet of ships ready for shore-fuelling, there are only 2 ports in Europe where that fleet can fuel. We have to look at investing in infrastructure and energy improvements.

There’s a lot that can be done with LNG, but it is not the answer to those distant zero per cent targets.

SK: I’d like to talk about alternative energy carriers – not alternative fuels. I don’t like that term. You talk about hydrogen, but it has to be manufactured. But most of it is produced from natural gas, and the carbon from that is released. So, you talk about zero per cent? This just isn’t sustainable.

Scalability is also an issue – we are using more than 300 million tonnes of fuel on the world shipping fleets. And we aren’t even talking about commercial issues yet. Fuels like hydrogen – forget about it – it isn’t going to work!

If we go to hydrogen on intercontinental routes -there would be no space left for cargo.

So, let’s stop talking about hydrogen in deep sea shipping, because its pointless. I see very encouraging developments in the marine sector and the energy sector – electricity, that’s where we should focus. Whatever you call this fuel, there will be a place for everything – biofuel, cooking oil, whatever. We could go to McDonald’s three times a day, and we still wouldn’t have enough cooking oil. We cannot simply say that whatever we do on a small scale can be scaled up.

PT: We are on the doorstep of 2020 and are still debating which fuels will be fuel of the future – but really we are struggling to look past 2030.

The shipping sector is quite weak today, and the last thing it needs is more instability. We want to diversify and manage change effectively by spreading risk across many different fuel types.

What happens next is… we don’t know. LNG has a role to play as a transition fuel, certainly, until 2030. Then another fuel will come through.

There are clearly going to be some winners and some losers. If some shipping companies have got the transition to LNG (and beyond) wrong, then they won’t remain competitive in their markets going forward. It will have nothing to do with the quality of the fuel, it will simply be that they haven’t got their reliance on certain types of fuel right.

TS: One per cent of our fuel is LNG in 2018, shortly rising to two per cent. We’ve invested in exhaust gas cleaning systems, instead. There’s going to be a lot of uncertainty – I’m not even going to talk about pricing – we just have to deal with it as it comes. We just have to be prepared, which means making decisions in due course. If, today, you’ve yet to make a decision regards to LNG or cleaning systems, then you have not made a decision in the best timescale.

There’s also an enforcement issue. What’s going to happen when a ship sails into an area in which the fuel it’s running is non-compliant?

PK: The cost of ships – an ocean-going LNG ship will be far more expensive, due to insurance and risk – are the banks ready to support investing into these vessels?

PT: Yes, but the costs are not as much as people think – you hear stuff like more than 15 per cent for an LNG vessel – it just isn’t that. Scrubbers, on the other hand, are even more expensive than you hear on the grapevine. The difference between regular ships and LNG is closer to seven or eight per cent. We are supportive of LNG as a fuel, and we fully expect banks to be supportive of the major liner companies that will be investing.

For more on this topic, make sure to check out our upcoming LNG report.