Methanol Sets Sail as EU Targets Shipping Emissions
Apr 3, 2024
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Mohith Velamala, a senior associate on BloombergNEF's oil team, discusses the challenges of decarbonizing the maritime sector, EU policies, and the outlook for clean shipping fuels. They explore the potential of ammonia, methane, and LNG as viable options and the long-term impact on fleet growth and carbon footprint.
Shipping industry explores cleaner fuel alternatives like methanol to reduce emissions.
EU regulations like ETS and Fuel EU Maritime drive shipping companies towards greener practices.
Deep dives
Impacts of Current Shipping Fuel Mix on Global Emissions
Oil-based bunker fuels powering global shipping fleets contribute significantly to emissions, accounting for over 5% of global oil demand and 2.5% of CO2 emissions in 2022. Despite economic and regulatory challenges, cleaner fuel alternatives like methanol, biofuels, and LNG are emerging in shipbuilders' order books, suggesting a shift towards more sustainable shipping practices.
Transition Towards Cleaner Shipping Fuels
Current fuel mix includes oil products such as fuel oil and marine gas oil, with recent shifts towards lower sulfur options due to regulatory changes. LNG is becoming prominent in new vessel orders, accounting for about 30% of the total order book. The rise of alternative fuels like methanol in ship orders highlights the industry's evolving focus on cleaner energy sources.
Challenges and Potential of Alternative Fuels in Shipping
While LNG usage expands primarily in LNG tankers, the transition to cleaner fuels faces challenges like methane slips. Biofuels offer a promising yet limited solution due to supply-demand imbalances. The prospects of newer fuels like ammonia and green methanol necessitate overcoming technology and infrastructure hurdles for commercial viability.
Regulatory Targets Propelling Industry Change
The International Maritime Organization (IMO) targets net zero emissions by 2050, reflecting a more ambitious approach to decarbonization compared to previous reduction goals. EU policies like the Emission Trading System (ETS) and Fuel EU Maritime regulations further drive emissions reduction efforts, pushing shipping companies towards greener practices and fuels.
Seaborne freight is the lifeblood of the global economy. It’s also a heavy polluter. Now that shipping companies, retailers and governments are all looking to decarbonize the supply chain, what is the outlook for clean shipping fuels? In a broad field of competing options including ammonia, methane and LNG, which is the most viable?
On today’s show, Dana is joined by Mohith Velamala, a senior associate on BloombergNEF’s oil team. Together they discuss the maritime sector’s existing decarbonization targets and whether these can realistically be met, the stringent EU policies that are having a global impact, and the long-term outlook for fleet growth and its potential carbon footprint.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com