Research Indicates That 95% of Shipping’s Zero Emission Fuel Projects Still on the ‘Drawing Board’

A new report issued by the World Economic Forum and Boston Consulting Group (BGC) has found that 95% of supply-side projects to produce zero emission fuels in maritime shipping are still at the pre-final investment decision (FID) phase. 

Being at the pre-FID stage means that a decision has not been made whether to invest and begin work on a project.

The report - Fuelling the Future of Shipping: Key Barriers to Scaling Zero-Emission Fuel Supply - suggests that the 180+ dual fuel vessels that have currently been ordered by carriers are not seen as a clear enough demand signal by fuel producers. 

In other words, fuel producers do not yet have confidence that enough dual-fuel ships will be ordered over the coming decades to justify investment in costly new alternative fuel infrastructure. 

Drawing upon the combined insights of 20 leading organisations ‘with different vantage points along the maritime shipping value chain’, the report sets out the top 10 barriers limiting zero-emission fuel projects from getting past the final investment decision phase. 

The report details the 10 barriers as follows:

1. Lack of clear demand signals with sufficient willingness to pay. Producers are unsure as to how much methanol will actually be used in the dual-fuel ships on order.
    
2. Expectation gap between fuel producers and carriers on terms of offtake agreements. Carriers are currently used to buying fuel on the spot market and are not used to entering into long-term fuel-take off agreements. This fails to provide the security fuel producers require to invest in new capital projects.
    
3. Lack of credible third-party cost estimates. Given that the zero-emission fuel industry is new, cost forecasts are viewed as unreliable.
    
4. Lack of fit-for-purpose financing instruments. Securing sources of funding with the appropriate risk appetite and dollar investment size to develop zero-emission fuel projects continues to be a challenge.
    
5. Lack of strong near- to mid-term mandates or a global price on carbon. A lack of mandates (except the IMO mandates) means the shipping industry has minimal incentive to switch to zero emission fuels at present.
    
6. Lack of standard definitions, methods and certifications. A lack of certainty on these points could risk the zero emission status of planned fuel projects after a project has gone past FID.
    
7. Methanol- and ammonia-specific risks. Methanol may find itself without sufficient sources of feedstocks as demand from other industries increases, whilst ammonia presents a number of safety hazards.
    
8. Competition and lack of alignment with other sectors. The shipping industry is already competing with other industries for important alternative fuel feedstocks. This could potentially lead to supply bottlenecks.
    
9. Zero-emission fuels infrastructure gap. The industry standard for determining whether suppliers or offtakers handle last-mile logistics has not yet been established.
    
10. Decision-making and risk appetite are limited by gaps in expertise. A lack of expertise within organisations is hampering the transition to zero-emission shipping fuels. 

However, despite setting out what appear to be a series of formidable barriers, the report does also contain a number of potential solutions. These include: 

• Developing projects spanning the entire value chain with transparent cost and risk-sharing, ideally on green product development. 
• Consolidating shipping’s demand for methanol and ammonia with other sectors (e.g. chemicals, fertilisers) to hedge end-market risk.
• Driving offtake agreements through public-private demand aggregation, including via reverse auctions.
• Developing strategic green corridors in the most attractive production locations and shipping routes, with reciprocal regulatory backing at endpoints. 
• Using innovative contracting and financing mechanisms, including capacity payments, dynamic contract pricing, offering equity stakes to strategic buyers.

To access Fuelling the Future of Shipping: Key Barriers to Scaling Zero-Emission Fuel Supply click here.

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