Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the B andF podcast. Seaborn freight is a critical part
Speaker 1: of the global economy and supply chains are inescapable. The
Speaker 1: shirt you bought, or perhaps the phone or the toy,
Speaker 1: all of them probably shipped to you at some point,
Speaker 1: if not in the end state that you bought it in,
Speaker 1: perhaps as the components that were put together. So let's
Speaker 1: use an electric vehicle as an example. Even with more
Speaker 1: onshoring and near shoring of manufacturing of batteries, the raw
Speaker 1: materials the nickel, cobalt, and lithium that are required to
Speaker 1: make the battery are sourced from all over the world
Speaker 1: and were sent to the manufacture on you guessed it.
Speaker 1: Ships with oil based bunker fuels powering the vast majority
Speaker 1: of the global shipping fleets. The emissions are significant. Consumption
Speaker 1: of marine fuels accounted for over five percent of global
Speaker 1: oil demand and two point five percent of global CO
Speaker 1: two emissions in twenty twenty two. Shipping remains one of
Speaker 1: the hardest to abate sectors faced with economic and regulatory challenges. Now,
Speaker 1: if we look at shipbuilders order books and the new
Speaker 1: vessels that are coming online. We're starting to see ships
Speaker 1: that are powered by cleaner fuels such as methanol, biofuels,
Speaker 1: and liquefied natural gas. On today's show, we're going to
Speaker 1: talk about the BNAF twenty twenty four Marine Fuel Outlook
Speaker 1: with Mohit Vallamala, a senior associate from BNF's oil team.
Speaker 1: We'll dive deep into the different marine fuels that could
Speaker 1: shape the future of the maritime industry, which has the
Speaker 1: potential to include things like ammonia. We're going to get
Speaker 1: into the decarbonization target set by the International Maritime Organization
Speaker 1: and talk about what it might take for these targets
Speaker 1: to become a reality. BNAF subscribers are going to be
Speaker 1: able to access this report, twenty twenty four Marine Fuel
Speaker 1: Outlook Methanol set sail at BNAF dot com or at
Speaker 1: BNFO on the Bloomberg terminal. Subscribe to this show for
Speaker 1: updates when we publish future episodes, and give us a
Speaker 1: review to share us with others. But right now, let's
Speaker 1: talk to Mohit about shipping fuels. Mohit, thank you very
Speaker 1: much for joining us on the show today.
Speaker 2: Thank you, Denna. It's a pleasure to join here.
Speaker 1: We're here to talk about shipping and the related emissions,
Speaker 1: something that you think about a lot, and let's start
Speaker 1: with talking about pollution. I mean, really, how polluting is
Speaker 1: the global shipping fleet which we use to get so
Speaker 1: many items around the world, you know, integral part to
Speaker 1: not just the consumer goods that we have, but actually
Speaker 1: to the transition. How much pollution is actually coming from
Speaker 1: this part of the economy.
Speaker 2: Yeah, I think when we look at pollution, it's mostly
Speaker 2: from the fuel that powers this ship. And right now
Speaker 2: most of it is predominantly oil. So it's five percent
Speaker 2: of the global oil demand and that translates around two
Speaker 2: point five percent of global carbon dix have emissions.
Speaker 1: And is this something that's going to be increasing? And
Speaker 1: the question I'm asking really is what's the growth forecast
Speaker 1: in terms of shipping.
Speaker 2: Yeah, I think it's in the very short term for
Speaker 2: the past one hundred years. Anyway. Now it's increasing a
Speaker 2: lot because of all the inefficiencies that come from Russia's
Speaker 2: vision of Ukraine. There's like a lot of trade that's
Speaker 2: being rerouted and now recent attacks in Red Sea, all
Speaker 2: the ships are going around Africa instead of using the
Speaker 2: sewiss Canar route. But like over time, the trade itself,
Speaker 2: we expect a growth of on like twenty percent between
Speaker 2: now and twenty fifty. But when it comes to like
Speaker 2: emissions itself, there are like a lot of efficiency increases
Speaker 2: both from like whether it's a new shape, new engine,
Speaker 2: or new fuel and the various things, and like a
Speaker 2: lot of technology side of things. So while the trade increase,
Speaker 2: but the fuel consumption and the related emissions historically it's
Speaker 2: been like more and less the same correlated with the
Speaker 2: growth in seabond trade itself, but we don't see that
Speaker 2: happening forward from now.
Speaker 1: So better ships, better engines, better fuels can lead us
Speaker 1: to potentially not growing emissions as this industry continues to grow,
Speaker 1: even potentially maybe taking a step back. So then let's
Speaker 1: talk about the fuels. What is the current fuel mix
Speaker 1: and what do you need to move a ship forward?
Speaker 1: Anybody who's listening, who's in the commodity space is probably
Speaker 1: sitting here going, But I mean for those who are not,
Speaker 1: what actually what are the fuels in ships?
Speaker 2: Yeah? I think I would just put it like on
Speaker 2: a high level, it's oil products. But for the oil markets,
Speaker 2: it's mostly like fuel oil that's there. And then there's
Speaker 2: also a mix of diesel that's called marine gas oil,
Speaker 2: that's the diesel equivalant fuel that's being used. So it
Speaker 2: also depends on certain things. Like back in twenty twenty,
Speaker 2: there was this big regulation shift in terms of what
Speaker 2: fuel you can burn in ships internationally, and that was
Speaker 2: a change from like three point five sulfur fuel oil
Speaker 2: to point by sulfur maximum fue oil and then like
Speaker 2: the whole industry mostly moved from that high sulfur fuel
Speaker 2: oil to low surfur fue oil. But then there are
Speaker 2: also something called as ec emission control areas where the
Speaker 2: sulfur emission is much more stricter, so you would have
Speaker 2: like something with a maximum cap of point one sulfur.
Speaker 2: So you see more use of marine gas oil that's
Speaker 2: the diesel equivalent, and also elng G. But LNG is
Speaker 2: predominantly used in just LNG tankers as of now, but
Speaker 2: that's changing a lot. Actually, if you look at all
Speaker 2: the new vessels that are in order that are being
Speaker 2: that has a commercial agreement to build maybe like over
Speaker 2: two years, so those ones, when we check that, we
Speaker 2: see a lot of LNG powered vessels and that's around
Speaker 2: like thirty percent of the total order book right now
Speaker 2: in terms of what's on order, but the dominant fuel
Speaker 2: still remains to be oil. So that's something that can
Speaker 2: run on fuel oil and marine gas oil for instance,
Speaker 2: and that's around fifty eight percent of the total autobook.
Speaker 2: But what's very interesting and very optimistic is also looking
Speaker 2: at how the new alternative fuels which are much cleaner.
Speaker 2: While these fuels are mostly like methanol or ammonia, but
Speaker 2: like in the order book, we just see methanol and
Speaker 2: that's not like ten percent of the total autobook.
Speaker 1: So when you talk about LNG tankers, we're actually talking
Speaker 1: about ships that are transporting LERNG but then also using
Speaker 1: the liquefied natural gas as one of the fuels that
Speaker 1: they're using. And I want to know why LNG is
Speaker 1: not used more widely in other ships.
Speaker 2: Just a bit of context on that. So most of
Speaker 2: these ships are like dual fuel. I mentioned previously about
Speaker 2: various other fuels like methanol in the order book, and
Speaker 2: also most of them are dual fuel as well. So
Speaker 2: because it's a combustion engine, they can also run on
Speaker 2: oil based fuels. And historic like energie started as a
Speaker 2: very niche industry and I would even club LPG tankers
Speaker 2: in that the tankers that carry liquified petroleum gas, and
Speaker 2: that's basically your propane and buttane that's used in cooking
Speaker 2: and also in petrochemicals. LNG is basically methane. And then
Speaker 2: if you want to transport inland, like you just use pipelines,
Speaker 2: but like if you want to transport for a far distance,
Speaker 2: you can't use an oil tanker for this because it
Speaker 2: has to withstand that high pressure. And then because of
Speaker 2: that high pressure, there's also something that's called a boil off,
Speaker 2: So that's basically the allergy that gets the gassified and
Speaker 2: comes out, and they use some of that as a
Speaker 2: fuel in allergy tankers as well. And one of the
Speaker 2: reasons why ellernge is not used elsewhere it's historically being
Speaker 2: in a very small market and now obviously it's very big,
Speaker 2: and even in terms of like growth areas as where
Speaker 2: we see a lot of growth both for LNG use
Speaker 2: demand and also energy shippings, and also you have to
Speaker 2: think about like port infrastructure. So it was initially meant
Speaker 2: just for like llergy tankers, but obviously now we're seeing
Speaker 2: a lot of change in that and what's interesting is
Speaker 2: when you look at LNG use as a shipping fuel.
Speaker 2: Historically it's been only in energy tankers, but now we're
Speaker 2: seeing let's.
Speaker 3: Say a bulk carrier.
Speaker 2: Bulk carriers basically it's a segment that carries all try goods.
Speaker 3: So if it's your.
Speaker 2: Coal, iron ore, all the metals, and even in the grain.
Speaker 2: So these are a majority component of that. So LERG
Speaker 2: is used as a bunker fuel is definitely expanding at
Speaker 2: more and more ship owners they're ordering these lergy vessels.
Speaker 1: So you actually need a different ship and a different
Speaker 1: engine in order to be able to make that work.
Speaker 1: But then how about what we would consider to be
Speaker 1: more drop in fuels? So with then bile fuels and
Speaker 1: then ammonia and methanol, how do those fit into the
Speaker 1: existing infrastructure? And you start with whatever your favorite one is.
Speaker 2: Because you mentioned drop in fuel, I would consider buy
Speaker 2: fuel as a drop in fuel. When we talk about biofuel,
Speaker 2: you're just like blending it with the fossil fuel. Like
Speaker 2: let's say, if you're talking about fuel oil or even
Speaker 2: gas oil, that's the easily equivalent, So you would just.
Speaker 3: Like blend a part of it.
Speaker 2: And I think in Rotterdam, one of the biggest part
Speaker 2: in Europe, so that's where you use a thirty percent blend.
Speaker 2: And lately, over the past few years we are seeing
Speaker 2: a pickup in sales of what we call it bio
Speaker 2: blended fuel oil. And that's one aspect, and you can
Speaker 2: also have like various blends, but in terms of scale,
Speaker 2: most of the current uptake is in Rotterdam and it's
Speaker 2: very promising. A Q four of twenty twenty three, so
Speaker 2: twenty five percent of the loss of for fueil says
Speaker 2: was bio blended, but I guess the actual biofuel volumes
Speaker 2: would be much lower because if it's a thirty percent
Speaker 2: blend or something, then it will be an eight percent thing.
Speaker 2: So if we are seeing le's peak up right now
Speaker 2: today in Europe, musty and also concentrated in all the
Speaker 2: key hubs. So that is something that we'll call it
Speaker 2: drop in fuel because you can use the existing vessels,
Speaker 2: you can use existing infrastructure, you just use it and
Speaker 2: your I guess average intensity carbon intensity would be lower.
Speaker 1: So it's a part way solution for us right now.
Speaker 3: Yeah.
Speaker 2: Yeah, and it's also I think what's really important able
Speaker 2: like these shipping fuels as well it's not stand alone
Speaker 2: where it's shipping is the only sector. They kind of
Speaker 2: interact with other sectors as well. Like we spoke about biofuel,
Speaker 2: biofuels is used. You know, you can put sustainable aviation
Speaker 2: fuel in that, you can have the road biofuels, so
Speaker 2: they interact with all the other sectors. Methanol and ammonia
Speaker 2: is much more complicated, and like I've been having a
Speaker 2: lot of conversations at ending conferences, no one is really
Speaker 2: satisfied with methanol and ammonia itself. One way to look
Speaker 2: at is where is the money flowing, so that shows
Speaker 2: a sign of confidence, and most of it is going
Speaker 2: for methanol, and that's the initial momentum is with methanol.
Speaker 2: But then if you want to talk about what happened
Speaker 2: until twenty fifty, everyone's like, oh, maybe not just methanol
Speaker 2: because they are like other concerns with methanol. They're talking
Speaker 2: about like ammonia, But ammonia has its own issues with
Speaker 2: how do we handle ammonia. It's toxic, there might be in
Speaker 2: it's a lot of crew training, so it's bit complicated.
Speaker 2: But that that's not even like accounting the new engines
Speaker 2: that you have to make to run these fuels because
Speaker 2: they've not been used before. And then even the concept
Speaker 2: of having the whole end to end value chain, the
Speaker 2: bunker infrastructure, it's not easy.
Speaker 1: So moving away from the drop in fuels and then
Speaker 1: to what are essentially coming from hydrogen, where there's a
Speaker 1: lot of attention on at the moment, tell us how
Speaker 1: to think about ammonia and methanol and really just kind
Speaker 1: of well, what the future of this shipping fleet could
Speaker 1: potentially look like.
Speaker 2: Yeah, I think like hydrogen is definitely important for both
Speaker 2: ammonia and methanol as well. Like, yeah, so both of
Speaker 2: them have like a hydrogen atominate, So it's clearly like
Speaker 2: a hydrogen question. So the cost of producing like greene
Speaker 2: hydrogen is also important. That kind of like flows into
Speaker 2: the prices into the cost of producing creen methanol or
Speaker 2: creane ammonia itself. So one of the things that most
Speaker 2: shipowners at least say is they don't want to bet
Speaker 2: on one fuel because what happens is as a shipowner,
Speaker 2: you build a ship for someone else to charter, and
Speaker 2: then if you have a fuel, and if you're committed
Speaker 2: to one fuel, and then there's shortage of the fuel
Speaker 2: in the port that you want, So that kind of
Speaker 2: complicates the whole equation. So everyone's like, Okay, we want
Speaker 2: to try our different fuels, and then there's not clear evidence.
Speaker 2: There are no major like ammonia ships running right now,
Speaker 2: so it's very hard for them to make business decisions
Speaker 2: on fuel that's not being used.
Speaker 3: To run and power these ships.
Speaker 2: So that's something that causing headaches for these ship onwners.
Speaker 2: While we've seen methanol ships in the auto book, most
Speaker 2: of this is being placed by a particular class of
Speaker 2: the shipping so that's container ships. I think these container
Speaker 2: ships are I would say in a well of position
Speaker 2: where the market itself is consolidated, where three to five
Speaker 2: companies control like majority of the market share. So there's
Speaker 2: a consolidation there in terms of companies. Next, when you
Speaker 2: look at what they carry, these are all like finished
Speaker 2: products and they have higher margins for it. So if
Speaker 2: you look at who their clients are, it's probably like Amazon,
Speaker 2: I hear the other companies and they have their own
Speaker 2: needs like oh, we want to clean up our valid chain.
Speaker 2: So in a way, there's pressure on shipping companies to
Speaker 2: provide carbon neutral shipping to retain their clients itself, and
Speaker 2: most of them are like based in Europe and they
Speaker 2: have shareholder pressure, they have exposure to EUTS and all
Speaker 2: the emission schemes that are coming up in Europe itself,
Speaker 2: So that's why they're like relatively well off. And you
Speaker 2: hardly see any orders from the other major vessel categories
Speaker 2: like the bulk carriers or oil tankers like one, it's
Speaker 2: a cost issue as well, but also especially for oil tankers,
Speaker 2: this whole thing is to move away, to decarbonize, to
Speaker 2: move away from oil, that's the core commodity you are
Speaker 2: building a ship to transport, and that makes them very nervous.
Speaker 1: So, as you said, the goal is ultimately to decarbonize.
Speaker 1: So let's talk about some of the targets that are
Speaker 1: out there, and you know, really who is trying to
Speaker 1: reach net zero versus just reducing emissions, because the maritime
Speaker 1: industry is one of the hard to abate spaces where
Speaker 1: there's a degree of innovation that we're going to need
Speaker 1: in order to be able to reach a net zero future.
Speaker 2: So I guess if you look at like who's setting
Speaker 2: the targets, it's the International Maritime Organization also known as IMO.
Speaker 2: So last year they updated their greenhouse gas strategy, finally
Speaker 2: targeting net zero by twenty fifty. Before even the target
Speaker 2: was just fifty percent reduction in twenty fifty compared to
Speaker 2: like the two thousand and eight baseline, So all the
Speaker 2: conversations that we had last year was or even like
Speaker 2: IMO is not targeting net zero, so what but like
Speaker 2: at least now at least the targets are set in place,
Speaker 2: so that's one thing. But they also have a target
Speaker 2: for twenty thirty that's a twenty percent reduction, but that's
Speaker 2: something that I would say, there's consensus that the shipping
Speaker 2: industry is not going to meet those targets. So that's
Speaker 2: a missed opportunity because all of the change, it's mostly
Speaker 2: post twenty thirties, is highly much change, and even like
Speaker 2: these new fuels, we won't see an ammonia vessel up
Speaker 2: until probably twenty twenties. So in terms of targets, obviously
Speaker 2: the main one is the IOMO because that's such the
Speaker 2: targets elsewhere, but I would say the European Union have
Speaker 2: like two schemes they included shipping in EU ets this year.
Speaker 2: In terms of impact itself, right now ideally it should
Speaker 2: be like talk of the town, but it's not that
Speaker 2: significant because of all the near term changes in the
Speaker 2: Red Sea and all the attacks.
Speaker 1: One of the things that you're referring to is that,
Speaker 1: first of all, that's this EU emissions trading system, which
Speaker 1: is essentially a policy intervention, and then there's the International
Speaker 1: Maritime Organization, which is a specialized group that's a part
Speaker 1: of the United Nations. So I'm seeing that these targets
Speaker 1: are really largely coming. We're talking about policy right now.
Speaker 1: Are there also targets coming from some of the companies themselves?
Speaker 1: Who are the ships that are going around the world.
Speaker 1: Are the shipping organizations themselves, Are they ambitious about driving
Speaker 1: down emissions?
Speaker 2: Yeah, definitely. I think most of them are like consolidated
Speaker 2: in the contingent containership vessel class, so we're seeing a
Speaker 2: lot of them have their own net zero targets, as
Speaker 2: I've mentioned, for like various reasons. But then there's also
Speaker 2: a few companies outside, particularly like Costco that's the Chinese
Speaker 2: shipping company, have their target, and shipping companies in Japan
Speaker 2: as well come up. But there's overall, I would say
Speaker 2: the trend is very high in container ship companies, whereas
Speaker 2: in bulk carriers and oil tankers, I think there are
Speaker 2: very few targets from that set. And while that is welcome,
Speaker 2: you need these companies to set up targets so that
Speaker 2: there's a willingness to pay the green premium for the fuels,
Speaker 2: because today probably the green fuels like green methanol like
Speaker 2: I'm on, at least four to five times more expensive. Obviously,
Speaker 2: like all the carbon price from EUTS would not bridge
Speaker 2: that gap. So you just need willingness either from the
Speaker 2: shipping companies to go ahead and do it, or the
Speaker 2: clients of the shipping companies requesting, oh, yes, we need
Speaker 2: carbon neutral shipping for this, So someone has to pray
Speaker 2: the premium, and like you need the willingness to pay,
Speaker 2: and this comes from setting targets themselves.
Speaker 1: So that's on the companies themselves and then the consumer.
Speaker 1: And then you know, just going back one more time
Speaker 1: to the policy end, because I switched you to companies
Speaker 1: before you had an opportunity to talk about the third intervention,
Speaker 1: which is also from the European Union, which is fuel EU.
Speaker 1: Can you talk a little bit about the targets there.
Speaker 2: So the EU has two schemes of the EETs, which
Speaker 2: I mentioned before. So you pay a carbon price based
Speaker 2: on what you emit, but the EU the fuel you
Speaker 2: married time is it sets the targets on the average
Speaker 2: creenouse gas intensity and those targets get stricter over time.
Speaker 2: So right now I think like fuels like LNG is
Speaker 2: still compliant, but you know, they gets like stricter over time,
Speaker 2: and then maybe on late twenty thirties, that's where we
Speaker 2: see energ not being compliant. Fuels like fuel oil and
Speaker 2: all of them won't be compliant starting from next year.
Speaker 1: So they won't be able to be used in Europe.
Speaker 2: Oh no, so you can use them, but it's more like,
Speaker 2: so you pay the differential. So let's say if you
Speaker 2: exceed the target by like five percent, then you pay
Speaker 2: how much of a fuel you consume, and then you've
Speaker 2: paid the five percent in access, so you could still
Speaker 2: use them, but it's just like you start paying for that.
Speaker 1: And does that price fluctuate the same way that the
Speaker 1: carbon price fluctuates the trading scheme or is it different?
Speaker 2: So it doesn't, So there's a penalty that's fixed by
Speaker 2: the EU that doesn't like fluctuate that much. But what
Speaker 2: happens is there's something that's called a pooling mechanism, So
Speaker 2: that's kind of I wouldn't call it necessarily a loophole,
Speaker 2: but you could probably take advantage of that where if
Speaker 2: you have one vessel that has if you use like
Speaker 2: an ammonia like methanol vessel, then you can.
Speaker 3: Pull together as a flea.
Speaker 2: You can have one methanol and then like two three
Speaker 2: oil based fuels, and then you can pull them together
Speaker 2: and then have an average fleet wide intensity and then
Speaker 2: comply with the target as well. So that kind of
Speaker 2: leaves the door open for more and more I guess
Speaker 2: like consolidations, at least the fleet operation side of things.
Speaker 2: They could consolidate them to meet the targets. But I
Speaker 2: would still say, yeah, while Europe is setting up these targets,
Speaker 2: this is very important. But also the emissions that are
Speaker 2: under Europe is still fourteen percent of the global shipping emissions.
Speaker 1: So Europe has aggressive targets, but they actually are not
Speaker 1: the vast majority of these shipping emissions, and so other
Speaker 1: parts of the world need to start kind of either
Speaker 1: adopting these or other other ways in order to I guess,
Speaker 1: get these shipping companies to actually look at adopting these
Speaker 1: newer fuels and newer technologies. And one of the questions
Speaker 1: I have as a follow on to that, and I
Speaker 1: think a parallel would be the automotive market, where you
Speaker 1: look at let's say the United States and the more
Speaker 1: strict emission standards they have in California and the fact
Speaker 1: that certain automotive manufacturers have then had to make less
Speaker 1: polluting vehicles and then ultimately they sold them in other
Speaker 1: parts of the country because they already designed the technology.
Speaker 1: Do you think that even though Europe is a smaller
Speaker 1: portion of the overall shipping industry and total emissions, do
Speaker 1: you still think that the technological advances that are being
Speaker 1: driven by these stricter standard it will have a benefit
Speaker 1: to other parts of the world.
Speaker 2: I think the beauty of the shipping market is it
Speaker 2: connects different regions. So what's happening in Europe is not
Speaker 2: just Europe. Talk about your example, like if there's a
Speaker 2: car that's driving in California, then it'll probably remain most
Speaker 2: likely in US where when you talk about like a ship,
Speaker 2: and if it's even like exporting oil from Houston to
Speaker 2: somewhere in Europe, so that still pays like even though
Speaker 2: it's fifty percent, that still pays a carbon price based
Speaker 2: on its emissions even something come from China to Europe
Speaker 2: foot page. So that's a good start. There's a lot
Speaker 2: more visibility. Over the past four years, there was like
Speaker 2: a lot more data on an individual vessel, like how
Speaker 2: much they emit, how much they consume. Once the data
Speaker 2: is there, that's very important as well. Last week I
Speaker 2: was in Stamford, Connecticut, and this was one of the
Speaker 2: panel discussions, like what's going to be your US response
Speaker 2: to the EU ets and what they did with shipping,
Speaker 2: And I think like some of the discussion points was
Speaker 2: it is unlikely to see the national level thing, but
Speaker 2: as you mentioned, there will be like states that can
Speaker 2: come up and then set targets for themselves.
Speaker 1: I mean, shipping is about as global of an industry
Speaker 1: as it gets. And we've talked a bit about Europe,
Speaker 1: but I I want to know which part of the
Speaker 1: world is the largest source of shipping emissions.
Speaker 2: The way we look at it is where you purchase
Speaker 2: the shipping fuel. So if you look at that, Unfortunately, Singapore,
Speaker 2: a very tiny country, would account for the highest share
Speaker 2: of emissions because it's a bunkering hub, but the actual
Speaker 2: demand comes from probably from like China in Europe and
Speaker 2: they're like probably fueling and Singapore on the way. So
Speaker 2: it's things like that where it is very easy to
Speaker 2: enforce it at the point of consumption. So that's why
Speaker 2: it's important to look at these hubs as well, and
Speaker 2: that's why ports have a very important role to play.
Speaker 2: And when you think about it, let's say the Port
Speaker 2: of Singapore, like Port of Rotterdam, they're all showing this
Speaker 2: new data on how much of these green fuels are
Speaker 2: being used, and they're like setting up studies and infrastructure
Speaker 2: required to have these bunkering hubs. It's also in their
Speaker 2: best interest because they're the biggest hubs. They want to
Speaker 2: remain the biggest hub even if the fuel changes or something,
Speaker 2: so they in a way they are also like leading
Speaker 2: the drive to get the new infrastructure so that they
Speaker 2: can provide the fuels required and then maintain their hub status.
Speaker 1: Yeah, because these emissions are largely they're shared with everyone
Speaker 1: who is receiving the goods from the ship, so it
Speaker 1: is really hard to pinpoint. Let's talk a little bit
Speaker 1: about the demand side of things, and specifically I'm referring
Speaker 1: to oil demand, and when our research says that it's
Speaker 1: possible that oil demand for use in maritime could actually
Speaker 1: peak if these other technologies actually start to get real
Speaker 1: traction get underway.
Speaker 2: Yeah, I think like we expect it, it's actually fairly soon,
Speaker 2: like in the twenty twenty five where we see a peak,
Speaker 2: but then the peak doesn't mean it's a fall off
Speaker 2: from there. So right now, like it's ninety eight percent
Speaker 2: of the total share, but they are like various other
Speaker 2: regulations as well that kind of drive efficiency in the
Speaker 2: shipping market, and then their fire they will reduced their
Speaker 2: fuel consumption and emissions from there. So we see oil
Speaker 2: demand and like shipping peaking at lound like five point
Speaker 2: five million birass per day in twenty twenty five, and
Speaker 2: that would go down to around that's a two point
Speaker 2: seven millionmbarrass per day by twenty fifty, and that would
Speaker 2: still be fifty percent of the total market share in
Speaker 2: twenty fifty, So even though there's a decline, it's still
Speaker 2: half of the market. So that just shows how difficult
Speaker 2: it is for like other fuels to ramp up because
Speaker 2: most of these vessels that are coming in and even
Speaker 2: the vessels that are there, they're going to stay on
Speaker 2: the sea for a long time because with the lifetime
Speaker 2: of like twenty five years approximately, it's some even extending
Speaker 2: more than that.
Speaker 3: It's hard to drive change. It's going to be slow.
Speaker 2: So that's where like the regulations should be like much
Speaker 2: strict and like most of these ship on ers are
Speaker 2: not against playing even like higher cost as long everyone
Speaker 2: has to do it, but it will pass the cost
Speaker 2: across the value chain. That's for like oil. And then
Speaker 2: I think the biggest increase we see is for LNG,
Speaker 2: like with financial gas, but like there's also a lot
Speaker 2: of heat on LERNG with when it comes to like
Speaker 2: methane slips. So that's basically the fuel that's not exactly consumed,
Speaker 2: like a leakage kind of thing. So that's something that's
Speaker 2: concerning and there's more and more scrutiny over that as well.
Speaker 2: But in terms of looking at what's on order and
Speaker 2: although uptake and like growth in infrastructure, and then we
Speaker 2: have the alternative fuels well.
Speaker 1: And when we talk about the next phase with these
Speaker 1: alternative fuels, one of the things that comes up at
Speaker 1: a lot of the summits, and I hear people on
Speaker 1: stage in particular when they're referring to biofuels, is that
Speaker 1: the demand is there and the market is willing to
Speaker 1: pay a premium for some of these fuels in order
Speaker 1: to decarbonize, but the supply isn't necessarily there yet. So
Speaker 1: will we be able to ramp up the supply of
Speaker 1: biofuels or even these much newer fuels that have their
Speaker 1: own set of drawbacks, like ammonia or green methanol. Are
Speaker 1: we going to be able to balance supply and demand
Speaker 1: and will it catch up I guess in time in
Speaker 1: order to reach some of these emissions targets that have
Speaker 1: been outlined by the IMO.
Speaker 2: Yeah, I think when we look at biofuel, and then
Speaker 2: the biofuel from shipping context is biodiesel because that's the
Speaker 2: one that's been used and like you blend it with
Speaker 2: various fossil fuels to get the standard blend that you
Speaker 2: want that you can use on ships. So in terms
Speaker 2: of supply, as I mentioned like how like shipping is interconnected,
Speaker 2: so biodiesel that comes from biofeedstocks, So it also depends
Speaker 2: on what the aviation industry is doing, what other sectors
Speaker 2: with biofuel will be used as doing as well, because
Speaker 2: as I've mentioned before, like there is uptake of biofol
Speaker 2: in certain regions, but not everywhere in terms of availability.
Speaker 2: I think going forward we see even when the demand
Speaker 2: from SAFF. That's very important because if airlines are paying
Speaker 2: to secure the sustainable aviation fuel, and like, if you're
Speaker 2: producing sustainable aviation fuel in a biorefinery, you won't get
Speaker 2: one hundred percent of sustainable aviation fuel from it. So
Speaker 2: if there's technical limitation as to how much you can
Speaker 2: maximize that, so you would have like by products from
Speaker 2: that as well. And if it is less, say fifty
Speaker 2: percent sustainable aviation fuel, you'll have thirty percent of biodiesel
Speaker 2: or something. So there will be like a lot of
Speaker 2: biodiesel supply that's going to come online on the back
Speaker 2: of let's say a SAFF uptake in airlines or something
Speaker 2: like that. But something that I find it very interesting
Speaker 2: is what's happening in the roads sector. So eventually we
Speaker 2: see ev uptakes in the roads displacing passenger cars that
Speaker 2: run on like gasoline and diesel, and we see a
Speaker 2: displacement of diesel in the road sector. And then when
Speaker 2: you displace diesel, like in a way, you're displacing the
Speaker 2: biodiesel that's used in the road as well. So once
Speaker 2: the displacement deepens after twenty thirties, we can see more
Speaker 2: of that supply that is available to use in like shipping,
Speaker 2: or even the feedstock that go into making that by
Speaker 2: diesel can be diverted to the biorefiners to make like
Speaker 2: saff and renewable diesel that can again be used in
Speaker 2: like the shipping sector.
Speaker 1: We're in the business of talking about the future and
Speaker 1: about transformations and industries that are actively changing, and within
Speaker 1: here it's always some combination of the companies operating in
Speaker 1: that industry and the financial players and the policy incentives
Speaker 1: all coming together in this very mixed number of insects.
Speaker 1: But really, what do you think is most impactful here
Speaker 1: in terms of driving change? Will it come from the
Speaker 1: companies or the emissions targets or from technology innovation that
Speaker 1: is ultimately pushed by the companies and the emissions targets.
Speaker 1: I mean, really, what do you think is going to
Speaker 1: be the most important linchpin to achieving anything close to
Speaker 1: what the IMO target is for net zero emissions?
Speaker 2: Yeah, I think initial change should definitely come from the
Speaker 2: companies itself because the price premium, even if it's double
Speaker 2: the cost. You could have governments step in like have incentives,
Speaker 2: but they're giving tax credits to like the producers to
Speaker 2: make these screen fuels. You could bridge that gap. Right now,
Speaker 2: the premiums are it's like four to five times, so
Speaker 2: you you can't really go and spend as a shipping
Speaker 2: company and then like liable to the shareholders like why
Speaker 2: would you sending increase all these costs, So that's very difficult.
Speaker 2: So I think like when the companies set targets and
Speaker 2: then their clients request that, So it's very that the
Speaker 2: container ship companies are paving the way and that kind
Speaker 2: of sets the whole ecosystem of these green fuels that
Speaker 2: are being used in like various pots. It will drive
Speaker 2: the infrastructure and then like other shipping vessel categories like
Speaker 2: bulk carriers, they can use that infrastructure. They can see
Speaker 2: these container ship companies and they get the confidence like okay,
Speaker 2: we can invest in these assets as well. So it's
Speaker 2: more like a confidence thing that comes. So in the
Speaker 2: near term, I think the companies should take the lead.
Speaker 2: And also posts we're seeing something that's called the green
Speaker 2: corridors where like two ports and different regions come together
Speaker 2: and like set up pack basically like okay, let's use
Speaker 2: green fuels for these two posts. And that does trial
Speaker 2: a lot of change as well. Particularly while shipping is
Speaker 2: like global, there's sometimes there are like some routes that
Speaker 2: are consolidated, like a trade, whether it's want to take
Speaker 2: iron ore from Australia to China or something that they're
Speaker 2: like always these commodities and for each commodities there's a
Speaker 2: particular route that's there that's frequently used.
Speaker 1: I like that A green corridor is this good old
Speaker 1: fashioned collaboration between kind of two areas of the emissions
Speaker 1: and like you were talking about before, these points on
Speaker 1: the planet that we actually look at when we are
Speaker 1: measuring the emissions, that could be a substantial part of
Speaker 1: the solution.
Speaker 2: Yeah, And ultimately IOMO has to drive the final change
Speaker 2: because like I trust in their abilities to get things
Speaker 2: done and aside the reason like twenty twenty regulation change.
Speaker 2: In twenty eighteen, twenty nineteen, that was all the oil
Speaker 2: industry was talking about, Oh there's going to be a
Speaker 2: new fuel. We don't know like how to produce that fuel.
Speaker 2: With discussions of first producing the fuel and then like
Speaker 2: those concerns of like hip notes as well, or we've
Speaker 2: not used this fuel before. But then when it came,
Speaker 2: you know, there was almost a compliance. It was higher costs.
Speaker 2: They had to pay much higher cost for a new fuel.
Speaker 2: Everyone paid for it there complying with it. So see,
Speaker 2: if IOMO wants it, they can easily get it done
Speaker 2: the countries together and then have like some kind of
Speaker 2: enforcement of that without IOMO police around the whole the
Speaker 2: high seas.
Speaker 1: I guess all right, the iMOS, the Lynchpin mohit. Thank
Speaker 1: you very much for joining us on the show today.
Speaker 2: Yeah, thank you so much for seeing me.
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