Achieving net zero is an 'OPEX not a CAPEX challenge'.

A joint Lloyd’s Register (LR) and A.P. Moller – Maersk study assessing the transition to zero carbon fuels has found that the cost of transport will rise – not because ships themselves will require greater levels of investment but because new fuels are projected to be significantly more expensive than existing fossil solutions which will lead to increased operating costs.

According to the study partners, achieving net zero is therefore an operating expense (OPEX) not a capital expenditure (CAPEX) challenge. A further key conclusion of the joint exercise was the recognition that the market will not drive the transition to zero and policy interventions as well as a fundamental change to the incentives scheme for shipping are required.

The joint study evaluates the interplay between economic performance of zero-emission vessels (ZEVs), technology readiness of fuels, associated machinery configurations, as well as safety and environmental considerations, all in the context of the wider energy system and the dependable production of future fuels. The study also found that the most relevant carbon neutral fuel configurations have relatively similar cost projections so initial modelling cannot yet determine clear winners purely from a cost point of view.

“The next decade will require industry collaboration as shipping considers its decarbonisation options and looks closely at the potential of fuels like alcohol, biomethane and ammonia,” says LR CEO Alastair Marsh. “This joint modelling exercise between Lloyd’s Register and Maersk indicates that shipowners must invest for fuel flexibility and it is also clear that this transition presents more of an operating expenditure challenge than a capital expenditure one.”

According to Katharine Palmer, LR global head of sustainability, who led the study on behalf of the classification society, “the additional price to build a ship with new fuel tanks, modified engines and fuel supply systems is a very small element of the total cost of operation, as the additional CAPEX cost is divided over the lifetime of the ship but given the potential impact of future fuel prices on operating costs, shipowners must invest in flexibility – for example, designing a ship which can run on one fuel today and later be retrofitted to run on an alternate fuel.”

According to the project partners, the greater challenge is on land and within the energy sector. ZEVs are technologically possible in the next two years and while they may require ships and engines to be amended, this is dwarfed by the challenges of getting the right fuel ready and the necessary supporting infrastructure on land.

“Shipowners must be confident around their future investments and they require confidence around their fuel supply chain, both availability in the quantities required and the land-based infrastructure in place,” says LR’s Palmer.

“Decarbonising shipping requires a total shift in propulsion technologies and by 2030 we need to see the first commercially viable carbon neutral vessels in service – that’s only 11 years from now. This is a game changer that requires close collaboration and joint action from researchers, regulators, technology developers, investors, customers and energy providers,” says Søren Toft, Maersk Chief Operating Officer.

“Getting such a wide range of actors to work in the same direction is a necessary task, fundamental for the world, the next generations and also for the shipping sector if it is to stay relevant as the servant of global trade in a decarbonised economy. The more industry consensus we can get towards the pathway to follow the better to accelerate the efforts to innovate, scale and initiated the transition to a sustainable shipping by 2030,” Toft added.

Motivation for the study:
At least 50% reduction in GHG emissions equates to around 85% reduction in carbon intensity, given the forecast growth in the volume of world trade to meet the needs of a global growth in population. New carbon neutral fuels are required to propel the global fleet. Even with a 60% efficiency improvement to be achieved by 2030 – absolute emissions will be more or less flat. To achieve 2050 zero-emission vessels need to enter the fleet in 2030 and form a significant proportion from then on. Therefore, going to net zero requires a total shift in propulsion technologies and energy sources.

Working with LR, Maersk undertook the study to rank potential energy carriers (and identify the key assumptions behind the ranking) for technical feasibility and total cost of operation to select the most viable energy carriers to deliver Maersk’s net zero CO2 by 2050 vision.

A.P. Moller – Maersk takeaways
Based on the initial modelling, the working hypothesis centres around three fuel configurations; alcohol, biogas and ammonia. Other configurations such as batteries or fuel cells for example seems much further behind and are not very likely to be part of the first generation of net zero configurations for deep sea shipping. However, it is too early to rule anything out completely. In general terms we will spend 80% of our focus on the working hypothesis and keep 20% looking at other options. We believe it is too early to zoom in on just one configuration.

LR takeaways
Centred around these three pathways are the technology challenges onboard. We believe we can mitigate and manage safety risks associated with ammonia as we have done with LNG, and that connections can be made between these pathways with compatible storage systems for more than one fuel and additional safety measures which can enable flexibility. The main technology challenges are on land and associated with the fuel production processes.

The three pathways – alcohol, bio-gas and ammonia
The three key pathways all have both pros and cons relative to each other that need further exploration;

The alcohol pathway is promising because it is liquid at normal temperature and there are existing markets, known execution and infrastructure which can be extended. It is also not a highly toxic product. On the con side is that there is not a clear linear transition from current technology and it is a fully open question whether there is enough supply of sustainable biomaterial.

The bio-gas pathway is promising because it presents a clear and smooth transition possibility from current technology and ship design (LNG and gas turbines). It allows for investing in known ships and engine technologies today which immediately cut emissions by up to 15% and then transit into biogas in the long run potentially via LNG with carbon capture storage (CCS) in the intermediate Nevertheless, this pathway comes with a challenge around methane slip in the entire supply system. There are also questions around sufficient supply of sustainable biomaterial and the technology challenges of producing synthetic gas as an intermediate step.

Finally, the ammonia pathway is promising because it is truly carbon free and can be produced with pure renewable electricity. As such it ties into an infinite resource and sun to energy conversion rate of this system is higher than biomaterial-based systems. It is already produced in high volumes for other sectors which could be scaled given an indication from shipping. The major challenges relate to the lack of any clear transition from current technology, but as a working hypothesis seems possible as well as the fact that ammonia is highly toxic and even small accidents have the potential to cause fatalities to crew and animals and seriously damage vast amounts of nature, so safety is a key challenge to overcome.

Parallel to the introduction of net zero fuels and as of now biodiesel present itself as a drop-in fuel which can peak emissions on the short term and sustain the built up of a differentiated market for net zero container transportation. However, it has a limited scalability as a long-term solution where no further efficiency gains are possible.
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