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Oil’s days as shipping fuel are numbered

Forget the sulphur cap—shipping industry’s biggest disruption will come from carbon rules

In December, the world's largest shipping company, Maersk, announced that it would transform its entire business to reach zero carbon emissions by 2050. This goal goes beyond the landmark agreement of governments at the International Maritime Organisation (IMO) in April 2018 to "at least halve" the shipping sector's greenhouse gas emissions by 2050.

As Maersk acknowledges, reaching zero emissions requires fundamental changes in how ships are powered, ending the combustion of bunker fuel. However, we have yet to hear from bunker companies on whether they plan to adapt and accompany their biggest customer on this energy transition, or just go out of business. How long have they got?

Because commercial vessels last 25-30 years, meeting the IMO's emissions trajectory requires most vessels built from 2030 onwards, at the latest, to be zero-emission. In this context, Maersk have committed to making their first carbon neutral container ships commercially viable by 2030, only 11 years away.

Zero-emission vessels already exist on a smaller scale; battery electric ferries are expanding fast in Norway and elsewhere, with 60 vessels expected on the water by 2021. This ahead of the country making its whole ferry fleet either electric or, for longer routes hybrid, by 2023. But batteries alone cannot meet the charging and space requirements of powering a container ship 8,000km (5,000 miles) across the ocean.

Wind-assisted propulsion is making a come-back, with trial projects involving Maersk Tankers (a separate company), Renault, Airbus, and Drax. However, given the demanding schedules of modern commerce, wind will only be part of the solution.

Therefore zero-carbon, energy-dense fuels are essential. Among these, hydrogen carriers such as ammonia look promising. There is a misconception that hydrogen technology is not advanced enough to power a container ship, when in fact hydrogen fuel has been advanced enough to put someone on the moon since the 1960s. We are not waiting for some magic technology breakthrough-the problem is mainly one of cost.

On this front, governments at IMO will be discussing carbon pricing again this year. Short-, mid- and long-term measures to achieve its CO2 goals are all due to be agreed at IMO between now and 2023.

Meanwhile the price of renewable electricity-the key variable in manufacturing "green" hydrogen through electrolysis-keeps falling. If, in particular, marine gasoil rather than very low sulphur fuel oil becomes the dominant marine fuel from 2020 onwards, price parity and commercial viability could be reached sooner than predicted.

An ocean-going RORO ferry powered only by renewable hydrogen ( HySeas III) will be delivered in the UK in 2020, racing a similar project in the US. More importantly, Belgian container giant CMB plans to trial hydrogen fuel cells on a bulker and containership this year.

Likely oil demand destruction

The shipping sector accounts for 5% of total oil demand according to the International Energy Agency-more than India-and yet most oil analysts, preoccupied with upcoming sulphur changes, have not noticed a major shift in its demand outlook over the last year.

Even as an early peak in road fuels oil consumption becomes more plausible (due to efficiency standards, biofuels and electric vehicles) most analysts see aviation, shipping and petrochemicals as three reliable pillars of continued demand growth.

The IEA, for instance, even under its 'New Policies' scenario, shows combined aviation and shipping sector oil demand grow from 11.5mn bl/d in 2017 to 13.2mn bl/d in 2025, and 16.3mn bl/d in 2040.

However, Maersk's announcement, on top of the IMO's GHG agreement, brings this consensus view into question: while oil analysts assume shipping sector demand will grow for decades, the biggest shipping company plans to reduce its oil consumption to zero.

For those just starting out in the shipping or oil industry, decarbonisation will shape their entire career, and the 2020 sulphur cap will, in comparison, seem a fairly minor fuel upgrade.

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