New Clean Fuel Contracts Could Come Too Late in Shipping Industry as Post-Pandemic Bounce Lifts Emissions (2)

EXCLUSIVE: By Mathew Carr

April 14, 2021 — LONDON: The shipping industry needs to boost its focus on futures contracts for cleaner fuel, or risk missing its targets to cut emissions by 2030.

An immediate challenge is that it needs to get over a surge in shipping demand as economies recover from the coronavirus pandemic.

Futures contracts could be introduced within two-to-three years, as liquefied natural gas, biofuels and green hydrogen become more physically traded, replacing dirtier bunker fuels, according to EEX’s Richard Heath, Head of Business Development, Global Commodities.

But, as in most industries, money is getting in the way of environmental imperatives.

Global shipping CO2 emissions decreased only 1% last year, even as cruise ship emissions dropped 45% during the health crisis, according to Hellenic Shipping News, citing maritime data provider Marine Benchmark. 

This year, the incentive to ship goods, and produce emissions doing so, is on the rise.

https://www.maritimeprofessional.com/news/container-shipping-looks-strong-2021-365408

The clean shift is no sure thing because the incentive to boost emissions is at a record high.

That places plans to cut emissions in the industry, a key sector of economic growth during the next three decades and beyond, at severe risk.

IEA Scenario Seems Modest

IEA

EEX’s Dry Bulk Freight business set a new all time record in March 2021, achieving a total traded volume of 122,544 lots, which marks an increase of 35% compared to March 2020. This was mostly driven by the futures market, which jumped by 71% to a volume of 114,509 lots traded.

The bouyancy indicates the industry needs to begin urgently preparing for more sustainable practices that help protect the environment, including offering clean-fuel alternatives.

Shipping needs to learn from the industry tension caused by regulation designed to remove sulfur from bunker fuels through last year, Heath says.

“The sulfur reduction has been a big success,” he said by phone. The industry “can take that implementation and put that into carbon reduction.”

The pollution reduction shows the industry can be a showcase of forward thinking, he said.

On Dry Bulk Freight futures, EEX offers out to 84 months (7 years). While most of the liquidity is in the shorter end of the curve, the exchange is starting to see more regular trading out to 5 years.

Calendar 2027 has traded for the first time recently. Cleaner fuel contracts could start 2 to 3 years out in order to build up some liquidity, before extending further out over time.

“We can see that the shipping industry has in the past found ways to meet the environmental targets which it has set for itself. I have a high level of confidence that the industry will rise to this challenge, as it has to others, and achieve the IMO reduction targets,” Heath said. But, it needs to get moving, or the opportunity may be lost, he said. Cleaner fuels are needed.

“We see several such initiatives use new zero carbon fuels to power vessels. At the moment these projects are being piloted in parts of the industry where the geographical scope of operations for the vessels is limited to a specific area. Other examples are the first methanol power container ship (to be delivered to Maersk in 2023) and plans for electric powered ferries in the Baltic Sea for mid-decade. These type of initiatives are great proving grounds for these new technologies. The limited geographical scope of operations allows the required infrastructure in ports to fuel such ships to be developed. If successful, such infrastructure can then be deployed in a more widespread way, allowing other vessel types to start using these solutions.”

The International Marine Organization will consider a work plan and working arrangements to implement GHG reduction measures, according to S&P Global Platts.

This is part of the plan: The initial GHG strategy envisages a reduction in carbon intensity of international shipping… (to reduce CO2 emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008); and that total annual GHG emissions from international shipping should be reduced by at least 50% by 2050, compared to 2008.

There’s a proposal for the use of global market based measures — the Marshall Islands and the Solomon Islands suggested a levy of $100/metric ton of CO2-equivalent in order to promote the uptake of alternative fuels.

Trafigura, the commodity trading group, is seeking a price as high as $300 a ton in the industry to cut emissions and speed the climate shift.

Gunvor, another trader, says 100% of owned ships and 75% of the time-charter shipping fleet will be “eco-vessels” by 2022, with an overall 100% before 2027.

In Rotterdam, new processes around hydrogen and co-processing of vegetable oil are being developed. In Antwerp, future development opportunities are being assessed for the land and a mothballed refinery. In Singapore, artificial intelligence is boosting port efficiency.

New tech can give live feeds on where containers are and when they will be moved, paying freight bills on a cellphone and clearing customs before vessels dock.

Still, the industry doesn’t seem on track to cut emissions anywhere near fast enough vs the targets in the 2015 Paris climate deal, with green fuels still three years away while the world is seeking to cut emissions by half in the decade through 2030.

(Updates with depth of market, smoothed some language on July 27, 2021)

NOTES:

EEX Group’s Richard Heath, Erlend Engelstad and Michael Mervyn Jones examine the role that decarbonization plays in shipping today, explore potential scenarios and solutions as to how it will evolve in the future and discuss how EEX Group, an exchange with a global footprint in both the freight and carbon markets:

EEX

Climate and trade talks linked: https://carrzee.org/2021/03/31/wto-will-meet-on-green-trade-rules-immediately-after-glasgow-climate-talks/

Platts: https://www.spglobal.com/platts/en/market-insights/latest-news/coal/032321-success-of-imo-2020-rule-sets-momentum-for-shippings-decarbonization-goals-imo-division-head

IMO claims sulfur success: https://www.imo.org/en/MediaCentre/PressBriefings/pages/02-IMO-2020.aspx

Also, note this: https://splash247.com/worlds-first-hydrogen-cargo-vessel-set-for-paris-debut/

Climate policy to spur trade tension: https://carrzee.org/2021/03/17/varied-speeds-of-climate-action-around-the-world-seen-causing-trade-tension/

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