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Tanker, bulker players to fight climate change with digital tools, alternative fuels

28 June 2022 Max Tingyao Lin

Some vessel operators and charterers in dry and wet bulk shipping have vowed to throw a one-two punch at tackling emissions through the use of digital technologies aimed at cutting bunker fuels consumption, and alternative fuels that emit less GHGs.

Maritime transportation, widely viewed as a hard-to-abate sector, remains predominantly reliant on oil-based fuels due to technical and financial challenges in developing low-carbon alternatives.

In 2018, the International Maritime Organization (IMO) established targets to reduce the carbon intensity of cross-border shipping by 40% by 2030 and halve GHG emissions by 2050, compared with their levels in 2018.

The industry has struggled to reach the UN shipping body's goals, which, according to environmental think tanks, are not even aligned with the Paris Agreement's aim to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

In the first annual disclosure report for the Sea Cargo Charter, which targets an enhancing of emissions data transparency, signatory companies sought to display their decarbonization pathways.

Holcim Group, which handles over 1,500 dry bulk shipments per year, provided a typical, textbook answer among them.

"We implemented … [a] digital logistics platform, powered by artificial intelligence, allowing us to optimize routes and loads," the Swiss building materials maker said in the report published earlier this month. "We are gradually replacing traditional fuels with eco-friendly fuels, and generally working together with our freight suppliers to address our common emissions."

Benefits of digitalization

In recent years, there have been an increasing number of software tools designed to find the ideal trading routes that can increase fleet utilization, cut bunker costs, and reduce ballast and port waiting time.

Those programs, based on algorithms, real-time vessel and weather data, and business intelligence gathered by humans, generally aim to minimize bunker consumption and achieve the associated environmental and economic benefits.

Signal Maritime, a signatory that commercially manages nearly 40 oil tankers with a proprietary digital platform, believes better financial and environmental performance often go hand in hand.

"Our decision-making in the commercial trading of vessels is driven to a large extent by the effort to achieve better utilization of our fleets. This has a direct positive impact on emissions," the Greek firm said in the report.

Speaking separately with Net-Zero Business Daily by S&P Global Commodity Insights (SPGCI), Signal CEO Panos Dimitracopoulos suggested the platform needs to constantly evolve to provide the most accurate trading suggestions.

"We aim to keep our fleet trading as efficiently as possible, avoiding ballast legs [or voyages with no cargo onboard], and seeking triangulation opportunities to increase the amount of transport work undertaken," Dimitracopoulos said.

Dow, one of the world's largest chemical producers, said in the report that the company tends to be engaged in more carbon-intensive tanker voyages with long loading and discharging time at ports.

The US-based company said it will invest in digital solutions to charter and operate ships more efficiently. "The evolution of these efforts will translate into new procurement and business models that achieve emission reductions while supporting business growth," Dow said without elaborating.

To reduce the carbon intensity of its shipping operation, signatory Torvald Klaveness also plans to adopt digital tools to minimize ballast time and maximize cargo intake, Head of Dry Bulk Michael Jørgensen told Net-Zero Business Daily.

"The Panamax segment, being the only segment we operate in, possesses the most potential for improvement," Jørgensen said. "The fact remains that around 45% of sea days in the segment are still ballast, which for all purposes, does not make sense."

Finding the right fuels

Many analysts estimate that gains in operational efficiency—such as those driven by digital tools—can help reduce carbon intensity by 10-20% when combined with technical improvements. This means alternatives to oil-based marine fuels still need to be found to reach the IMO's 2030 target.

In the report, Shell and TotalEnergies both said they see LNG as an option. The two energy majors, which are among the world's largest natural gas producers, have fixed long-term charters for at least 30 oil tankers that can run on LNG.

LNG—whose CO2 emissions are 20-30% lower than oil-based fuels—are emerging as the top alternative because its supply infrastructure is well developed, according to maritime professionals.

SPGCI Freight Analytics data shows 4.5% of the existing fleet in deadweight terms uses alternative fuels, of which nearly 90% runs on LNG. Also, about 80% of the current orderbook of alternative fuel vessels is LNG-based.

"It is currently a readily available solution in order to start working towards the industry's decarbonization," said Anastasia Zania, an analyst at SPGCI Freight Analytics.

But burning LNG has become an expensive option for shipowners in recent quarters as natural gas prices spiked amid supply chain issues and geopolitical conflicts.

Platts assessments show LNG bunker (fuel oil equivalent) price in Rotterdam—Europe's top ship refueling hub—was about $1,536/metric ton (mt) 28 June, compared with $892/mt for the benchmark oil-based 0.5%-sulfur grade.

LNG bunker sales in Rotterdam slid from 212,779 cubic meters (cu m) in the third quarter of 2021 to 94,454 cu m in the fourth quarter, before recovering to 111,804 cu m in the first quarter of 2022, according to the port authority.

In April, Louise Dreyfus Company—another signatory—completed its first trial of an alternative fuel that was 70% oil-based and 30% biofuel (B30).

B30 was used on a juice carrier in a round trip between Ghent, Belgium and Santos, Brazil. The agricultural trader reported the fuel can reduce voyage GHG emissions by about 24%.

Cargill, another agricultural trader that committed to the Sea Cargo Charter, has also experimented with B30. The company said it had carried out 17 trials in the Netherlands as of June, with a total bunkering quantity of 8,300 mt of the fuel. An average GHG cut of 21.8% was recorded, equivalent to 6,800 mt of CO2-equivalent in total.

However, both LNG and B30 are insufficient to meet the IMO's 2050 target. Industry participants expect green hydrogen, ammonia, methanol, or other types of synthetic fuels produced from renewable energy to be required to make significant progress in decarbonizing shipping.

Several signatory companies, including Cargill, Trafigura, and Shell, have promised to develop and deploy commercially viable zero-emission ships in deepsea trade by 2030 via the Getting to Zero Coalition initiative. Like the charter, Getting to Zero was established under the auspices of the nonprofit Global Maritime Forum.

Posted 28 June 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability



This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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