The smart money is in 'scalable' green fuels, says UMAS study

Impression of a Maersk vessel powered by green methanol

However well-intentioned, early investment in shipping biofuels may be misguided, according to the latest study by consultancy UMAS.

Released today, Cost of Zero Emissions Container Freight Shipping: a study on selected deepsea and shortsea routes, gives headline figures of a 17-50% increase in rates per teu for Shanghai to LA, prompted by an increase in ship operating costs of $90-450/teu.

Also, a 9-17% increase for a 4,000 teu feeder service along the Chinese coastline – as of 2030, fuelled by a $30-70/teu increase in operating expenses.

The study’s authors are keen to point out, however, that these figures represent a “conservative perspective” on the outlook for fuel costs – a worst-case scenario, in which countries make zero concessions in terms of subsidies.

The US Inflation Reduction Act (IRA) is cited as an example of such a subsidy which has been excluded, “providing a conservative perspective on the outlook for fuel costs”.

 “…the difference could drop as low as 1.6 to 2.4 times if subsidised hydrogen used for e-ammonia production ranged from $1 to $3/kg-H2,” UMAS suggests.

The study takes care to distinguish between zero-emission fuels and what UMAS calls “scaleable zero-emission fuel” (SZEF). For example, while it has been taken up by Maersk as part of its project to jump-start green methanol production, bio-methanol is not considered by UMAS to be SZEF, “due to supply constraints and the impact of land use change associated with some biogenic feedstocks”.

Bio-LNG, or bio-derived heavy fuel oil, such as that used in Samskip vessels recently, would also stand outside the SZEF category, for the same reason. But because the feedstock for non-scalable zero-emission-fuels is limited, and will only become more so, UMAS determines that first-mover investment in these non-SZEFs “would be money wasted”.

At any rate, bio-feedstocks will likely be funnelled into aviation and trucking, instead of shipping. For example, the text of RefuelEU Maritime makes this overt, with provisions to discourage “a shift of crop-based biofuels… to maritime transport…” and “…the creation of a potentially large demand for food and feed crop-based biofuels, bioliquids and biomass fuels [in shipping]”.

For SZEF fuels such as green methanol and green ammonia – made using renewable energy – UMAS expects first-mover investment will yield lower costs in the next decades.

“Early movers in the transition… have a choice: to go for cheaper but non-scalable fuels… which will become more expensive as demand outstrips supply,” or invest in more expensive SZEFs, “…thus stimulating a more likely long-term solution that will become cheaper as production ramps up and demand grows”.

Though some of Maersk’s methanol project investments rely on scalable production processes, making them SZEFs by definition, many do not, meaning UMAS appears to be advising against the shipping giant’s first-mover strategy.

“…whilst [bio-methanol, bio-LNG etc] is cheaper in the short-run, the initial use… does not significantly improve the long-run costs of DAC-methanol,” the study says. “This is because they use different production pathways, meaning that any early investments, learning and advantages of scale translate poorly from bio-methanol to DAC-methanol.”

However it is not all doom and gloom, adds UMAS.

“The cost burden can appear to be high during the emergence phase, but there are already subsidies appearing that can close the gap between conventional fuels and SZEF,” the consultant said, noting that these are not factored into its study.

“The window of opportunity for corporate action before regulation increasingly closes the gap is now only around a handful of years.”