Going marine green on a sea of red ink

Marine cargo carriers: battered economies, depressed oil prices, financial viability complicate sector’s environmental initiatives

The Mari Couva is one of Waterfront Shipping’s methanol-fuelled tankers. The Vancouver-based shipping arm of Methanex Corp. operates the world’s largest methanol tanker fleet | Submitted

A course correction looms for 2020’s greening-of-marine-transportation plan.

Stalled economies, steep crude oil discounts and financial viability challenges for ocean container carrier companies are all factors in that correction.

Recent estimates from U.K.-based shipping consultancy Drewry for port container volumes in 2020’s second quarter have global port throughput dropping by around 9%.

World trade outlooks are not getting any brighter.

The International Monetary Fund estimates an 11% reduction for 2020 and recently downgraded its projected decline in 2020 global output by 1.9 percentage points to 4.9%; World Trade Organization forecasts trade reductions of between 13% and 32% for 2020.

That is a lot of lost business for an already financially distressed marine cargo sector.

A protracted downturn in global trade has serious implications for container shipping companies, many of which are already in the financial distress zone of Drewry’s Z score financial metrics. Economic survival is therefore complicating marine transportation’s environmental improvement initiatives.

Danish Ship Finance (DSF) notes in the international ship finance company’s May 2020 Shipping Market Review that the push for decarbonizing the shipping industry is still on, “but the barriers are higher. Profit margins are slimmer in times of surplus capacity, and the low oil price is causing the price differential between existing marine fuels and green alternatives to widen.”

So the cost of decarbonization could sideline alternative fuel ambitions because, as the DSF pointed out, “the inability to identify a viable business model with a significantly higher fuel cost structure” is now atop the challenges facing ocean carriers’ transition to greener fuels.

But that transition is not an option.

In January, the International Maritime Organization’s (IMO) low-sulphur fuel regulations came into effect for the owners of the 5,200 container ships servicing major world trade loops.

The IMO 2020 rules cut the allowable sulphur content of marine vessel fuel to 0.5% from the current 3.5%.

The low-sulphur rules are the first step in reducing the sector’s contribution to air pollution. Shipping accounts for an estimated 3% of global carbon emissions.

But IMO 2020 targets only sulphur dioxide.

So the organization is also aiming to cut international shipping’s overall greenhouse gas emissions 50% by 2050 compared with 2008 totals.

With fuel accounting for approximately 50% of a ship’s voyage costs, the pre-pandemic estimate for container shipping companies to comply with the low-sulphur regulations was around US$15 billion.

Energy research consultancy Wood Mackenzie estimated that annual global bunker fuel costs could increase by up to US$60 billion.

But COVID-19 turned those estimates on their heads.

Its shutdown of economies affecting 81% or the world’s workforce blew a hole in world oil prices.

The upside for ocean carriers was a dramatic and unexpected drop in bunker fuel prices; the downside for the estimated 15% to 20% of the global container fleet that opted to invest millions in installing exhaust cleaning systems (scrubbers) to allow them to continue to burn regular bunker fuel was that they received no payback from that multimillion-dollar investment because the high and low-sulphur fuel price differential disappeared.

“Therefore, these carriers are effectively losing a lot of money on these scrubber investments,” Philip Damas, Drewry’s managing director in charge of logistics practice, pointed out during a June 16 container ports and terminal market update.

But scrubbers, which have their own environmental drawbacks, are a stopgap measure to allow older ships to comply with tighter environmental regulations now. Retrofitting large container ships to operate on alternative fuels is not cost effective. The technology has to be incorporated in new vessels. So companies like Maersk (CPH:MAERSK-B), the world’s largest container ship operator, are focused on long-term fuel alternatives.

It’s committed to becoming a net carbon-neutral shipping company by 2050. That’s a significant undertaking for a 750-vessel fleet.

But as Lee Kindberg, the company’s director of environment and sustainability for North America, has told BIV, Maersk, above all else, sees it as “the right thing to do.”

So it needs to get the greener fuel alternative right, and it needs to get it right soon, because, as Kindberg noted, a container ship’s typical lifespan is between 20 and 25 years.

“So to have the whole fleet net zero by 2050 means that you have to be launching your first commercial vessels by 2030, which means you have to order them by 2028, which means you have to design them by 2027, which means you have to be identifying technologies and starting to build infrastructure to be able to provide those at scale even sooner than that.”

Maersk sees LEO (a lignin-ethanol blend), biomethane and ammonia as the most viable near-term fuel propulsion options to achieve its 2050 net-zero-carbon-shipping target.

Other greener marine fuel contenders are liquefied natural gas (LNG), ammonia, methanol, hydrogen and biodiesel.

Each has availability, viability and technological pros and cons – details of which outrun this space, but here are some points to consider.


While LNG is the cleanest fossil fuel that is readily available worldwide, an International Council on Clean Transportation research paper released earlier this year questioned the long-term upside of using LNG as a marine fuel. It maintains that, over a 100-year period, the maximum life cycle greenhouse gas (GHG) benefit of LNG “is a 15% reduction [in GHG emissions] compared with [marine gas oil], and this is only if ships use a high-pressure injection dual fuel engine and upstream methane emissions are well-controlled.”

Global shipping data company Alphaliner also noted in a March newsletter that LNG technology is financially viable only if it is incorporated in new ships, and that by the time the costly installation of LNG fuelling infrastructure has been completed, the fuel will likely be obsolete.

Vancouver’s Teekay Shipping Ltd. (NYSE:TK) is the world’s third-largest independent owner and operator of LNG carriers, but its IMO 2020 plan does not involve converting ships to LNG propulsion.

Christian Waldegrave, Teekay Tankers’ director of research and commercial performance, told BIV that the company would focus on switching to low-sulphur marine fuel, because Teekay already has a lot of experience using it.

However, because it produces almost no particulates, sulphur or nitrous oxide emissions and generates a third less carbon dioxide than diesel, LNG is a strong bridge fuel to a carbon-neutral shipping future.

IMO 2020 compliance plans for Vancouver-based Seaspan Corp. (NYSE:ATCO) the world’s largest independent charter owner and manager of container ships, is considering incorporating LNG power in new Seaspan ships.

BC Ferries, whose people-moving mandate prevents it from experimenting with alternative fuel technology, has embraced LNG as a bridge fuel option.

It is harnessing the province’s expertise in LNG technology and its abundant natural gas resources as part of the publicly owned marine transportation company’s Clean Futures Plan to incrementally convert the corporation’s 36-ship ferry fleet to natural gas from marine diesel.


Ammonia is gaining traction as carbon-neutral marine transportation fuel.

A Korean Register report released recently concluded that ammonia would have low production, storage and transportation costs compared with other carbon-neutral fuels. The maritime industry organization also noted that large-scale ammonia synthesis technologies are already mature and that ammonia can be combined with diesel and other fossil fuels to lower carbon emissions by up to 80%.

However, ammonia is extremely toxic and corrosive.

Alphaliner also pointed out that worldwide ammonia production, which is energy-intensive, would have to double to meet maritime shipping requirements.


Methanol, which has the lowest carbon content and highest hydrogen content of any liquid fuel, has several advantages over LNG. It can be produced from various sources, including black liquor from pulp and paper mills, and the additional costs of installing methanol systems on ships are roughly one-third those of installing LNG systems.

A European maritime research and technology consortium was launched in June to demonstrate the feasibility of using methanol to power new and retrofitted vessels as another route to carbon-neutrality for the shipping sector.

The 14 partners in the Fastwater project, which has funding from the European Commission, include the Port of Antwerp, the Swedish Maritime Administration and Lloyd’s Register.

Vancouver’s Waterfront Shipping Co. operates the world’s largest methanol tanker fleet. Eleven of the Methanex Corp. (TSX:MX) subsidiary’s 30 ships can be powered by methanol.


The technology needed for hydrogen fuel cells to power deep-sea ships is still a long way from commercial viability.

For example, it has to be stored at -253 C, and hydrogen fuel tanks would have to be roughly eight times the size of those that carry fossil fuels. So it is an extremely expensive option for ocean carriers. Hydrogen production also needs other energy sources, so if they are not renewable, there could be a relatively small net reduction in greenhouse gas emissions from using hydrogen.


It’s sourced from crops, marine algae and other food sources, so using biodiesel raises production priority and food security issues.


Battery technology is currently viable primarily as auxiliary power to augment diesel generators in diesel-electric propulsion systems, where bow thrusters and other machinery improve manoeuvrability for ferries, cruise ships and near-shore vessels that don’t rely on tugs to help them dock.

BC Ferries is using battery technology developed by Richmond’s Corvus Energy in what will be six of its new Island Class vessels. The first two hybrid electric ferries arrived in B.C. from a shipyard in Romania in January.

But batteries only store energy; they do not produce it.

That makes them impractical as a main propulsion source for ocean-going container cargo ships.

As Sean Puchalski, Corvus Energy’s executive vice-president of strategy and business planning, pointed out to BIV, “if you were just charging onshore and travelling to China, the battery would need to be so big that it would sink the ship.”

So the course correction for maritime shipping companies in B.C. and elsewhere around the world is going to take a lot of well-financed and astute technical navigation to steer the sector into greener environmental waters, regardless of which route they choose. •