Two words unfortunately dominate today’s headlines: pandemic and recession. Of course, the short-term focus is mitigating the negative impact of both. But while putting out these fires, we cannot forget the roaring blaze over the horizon that must continually be addressed: climate change.
Increasing the choice, availability, and price transparency of greener marine fuels in shipping – carrier of 90 per cent of global trade – is critical to meeting the challenging green goals set by the International Maritime Organization (IMO) and the Paris Agreement. Despite today’s major distractions, the marine fuels supply chain – refineries, ports, storage operators, shipping companies et al – must work harder and more collaboratively than ever. The environmental goals will not disappear, so it is a matter of chance or risk being left behind in the 2020s.
The IMO’s initial Green House Gas (GHG) strategy envisages reducing CO² emissions as an average across international shipping by at least 40 per cent by 2030. It also includes reducing total annual GHG emissions from international shipping by at least 50 per cent by 2050, compared to 2008. These targets are the most ambitious the industry has ever faced. It will take significant efforts to succeed. Slowing resources that could grow the green marine fuels market – financings, research and development, talent enhancement, partnerships and more – jeopardises both economic and environmental security in the long-term.
Stakeholders’ confidence can be buoyed by the ongoing success of IMO 2020. This involved the organisation reducing sulfur limits from 3.5 per cent to low sulfur fuel oil (LSFO) of 0.5 per cent from January 1 this year for more than 50,000 vessels worldwide – one of the shipping industry’s biggest challenges since the early 1900s. Five months in and the UAE’s Port of Fujairah, the world’s second-largest bunkering hub, has reported strong compliance. And 96 per cent of the ships calling at the Port of Singapore, the world’s largest bunkering hub, have complied, according to the Maritime and Port Authority of Singapore (MPA).
The marine fuels market gets more liquid and multifaceted every year, but far more scalable implementation is needed. Ultra-low sulfur fuel oil (ULSFO), low sulfur fuel oil (LSFO), liquified natural gas (LNG), scrubbers, liquified petroleum gas (LPG) and even methanol and hydrogen – all are viable, cleaner routes that should be explored and leveraged in the 2020s.
For example, in the ULSFO market, this January started with strong demand, driving price margins to levels never predicted. And then on February 19, we started to see the economic knock-on effects from Covid-19. While this took some heat out of the initial frenzy, demand remains bullish. Appetite will only increase, which is good news for the environment.
We for one just reported a record-high quarterly sales volume of 1.3mn metric tons of VLSFO East of Suez, mainly Fujairah, Singapore, East Africa, Sri Lanka, and China.
Of course, growing a relatively new market in today’s uncertain climate is a tall order. The global economy could contract sharply by -3 percent this year, according to the International Monetary Fund (IMF). But there’s relief ahead. If the lockdowns are gradually lifted in the second half of 2020, the economy could climb by 5.8 per cent in 2021 – tentatively reassuring. The Middle East is already being proactive and looking at long-term solutions, with governments playing a vital supporting role in technology research and adoption. Efforts to stick to long-term goals amid today’s short-term chaos must keep intensifying. Regardless of the pandemic and recession, the environmental clock ticks on. Marine fuels cannot be caught short.
[Lars Liebig is Managing Director, Uniper Energy DMCC]