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Shipping Fuels: The Paradox of Choice

In our last post, we compared the two main options for decarbonizing road transportation to really wrap our minds around why battery electric vehicles make more sense than hydrogen fuel cells for nearly all use cases. But what about other modes of transportation? In this post, we’ll explore a major bugaboo for getting to a net-zero world — decarbonizing the shipping industry.

According to studies by the International Maritime Organisation, the maritime sector produces 940 million tonnes of CO2 per year, representing 2.5–3% of global greenhouse gases emissions — more than Germany, the world’s sixth-largest polluter.

Courtesy of Bloomberg

Solving this issue is particularly thorny because the industry doesn’t pay taxes on fuel or carbon pollution in many countries and most shipping emissions go uncounted because nations don’t take ownership of them. According to the ICCT, the biggest emitters are also the biggest vessels — container ships, followed by the bulk carrier and the oil tanker. Container ships account for about one fifth of all emissions, so we’ll focus on these ships for the purposes of this post.

Unlike road transportation where there’s a dominant leader (battery electric) and a lagging alternative (hydrogen), there is no clear frontrunner for decarbonizing the shipping industry. The options (courtesy of Bloomberg) include:

Ammonia

  • Pros: No CO2 emissions when made cleanly. Already commonly shipped around the world.
  • Cons: Much less energy dense than traditional fuel oils so would need about 3x the space to contain the same amount of energy. Toxic for humans and aquatic life. During combustion, it produces NOx emissions, an air pollutant and health hazard, and nitrous oxide (N2O), which is 300x stronger than CO2.

Hydrogen

  • Pros: No CO2 emissions when made cleanly. Can be used in a ship’s internal combustion engine or in a fuel cell.
  • Cons: Very low volumetric energy density, so needs to be stored at either -253 degrees Celsius (-423 Fahrenheit) in liquid form or under high pressure. Potentially explosive.

Biofuels

  • Pros: Compatible with existing commercial marine engines and fuel infrastructure.
  • Cons: More expensive than fossil fuels and a major increase in production would be needed to meet maritime demand.

Methanol

  • Pros: Liquid at ambient temperature so it can be stored in regular, non-pressurized tanks. Can be made cleanly and is already in use in some ships.
  • Cons: Less energy dense than oil-based fuels and the clean version is at least twice as expensive as the fossil-based, very low-sulfur fuel oil (VLSFO) used by many vessels today.

Battery electric

  • Pros: More efficient end-to-end efficiency since chemical conversion, compression, liquefaction, etc. are not required.
  • Cons: Batteries have relatively poor gravimetric and volumetric energy density, and unlike other fuels, the associated weight does not lighten throughout the journey.

Because of this uncertainty, major shipping companies like Maersk are hedging their bets by ordering a variety of alternative power trains. Orders for new ships in 2020 plunged 50% to the lowest in at least two decades while the choice of alternative fuel remains unclear.

Courtesy of Bloomberg

What all of these alternative fuels have in common is that they are less energy dense than the VLSFO typically used today, and lack the bunkering infrastructure to transport them to refuel ships.

This qualitative comparison is fine and dandy, but what do the economics really look like? When we (attempt to) account for alternative fuel cost, efficiency, upfront cost, and revenue opportunity cost incurred by removing container capacity to make room for lower-density fuel, we get this:

Biofuel is the most cost-effective option (if the industry can secure sufficient supply of feedstock without net negative consequences), followed by methanol and ammonia. (For hydrogen enthusiasts, both methanol and ammonia are simply chemical ways to store hydrogen rather than compressing or liquefying it.)

This picture looks uninspiring. Barring some transformative technology that drastically reduces fuel costs, every option is more expensive than the VLSFO used today. That’s why Maersk is calling for a $150-a-ton carbon tax on shipping fuel to bridge the price gap between fossil fuels and greener alternatives. This would effectively almost double the cost of VLSFO if the measure were imposed today.

Those who have been dealing with container rates spiking 500% over the last few months might be screaming, “You want to increase shipping costs more?!” Calm down and take a breather. These rates primarily reflect the supply imbalance in capacity, not fuel prices. In a normal freight rate environment, doubling the fuel price translates to about a 15% rate increase, so this would have a much smaller relative impact based on today’s prices.

As a matter of fact, if marine fuel costs were to double, the price of a flat-screen TV in a shop would only rise by about $0.50-$1, hardly perceptible by the end consumer (and easily passed on).

One technology you may have noticed was incomplete in the calculations is nuclear. This technology actually looks quite attractive qualitatively. Nuclear powered ships are obviously used widely in navies across the globe and can go 50% faster than oil-fueled ships of the same size. For the shipping industry, the increased number of runs per year, and the increased profits, appear to more than offset the increased operational costs of nuclear, according to an analysis by researchers at Penn State.

One major concern with this technology is unsurprising — the general wariness of anything nuclear sitting in a port. Another concern is that nuclear ships need highly trained personnel, which might present a labor problem. That being said, some folks have proposed interesting solutions to port restrictions on nuclear vessels, and the commercial maritime industry could become a lucrative second act for trained Navy officers, much like former Air Force pilots join commercial airlines.

Unfortunately, it was difficult to find any substantive and publicly accessible data out there to run any quantitative analysis, so nuclear will remain a wild card for now. If you know anything about it, chime in and let me know!

And click here if you want to read an interesting history of the United States’ only nuclear cargo ship.

This is the second post in a series comparing alternative fuels for a variety of transportation modes. To read the post on road transportation, click here.

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