Op-Ed: Adopting alternative fuels under new emissions regulations

William Chia

By William Chia, Chairman and CEO, Banle Group

The global shipping industry is under a tight deadline. It now has less than 6-months to lower their global climate footprint under the new targets imposed by FuelEU Maritime, and their actions could have a drastic impact on shipping costs across the globe.

Switching to alternative fuels is one of the fastest ways for cargo shippers to lower their emissions but it’s not as easy as flipping a switch. LNG, LPG, hydrogen, ammonia, methanol and biofuels are among the many options cargo shippers can use.  Some alternative fuel options aren’t compatible with engines, while others require heavy investments.

Which Alternative Fuels Making Most Headwinds?

The answer provides insight for the entire global energy supply. It can also suggest where alternative fuel prices might be headed in the second half of the year and its impact on inflation.

Banle Group is one of the largest marine fuel logistics companies in Asia Pacific, providing container liners and cargo ships with one-stop bunkering in the world’s largest shipping routes. Banle Group’s business activities are primarily focused in over 55 major ports covering Belgium, China, Hong Kong, Japan, Korea, Malaysia, Mauritius, Singapore, Taiwan, Thailand, Turkey and Vietnam. 

As Chairman and CEO of Banle Group, I’ve watched the marine cargo shipping and bunkering industry transitioning from conventional fuel to green marine fuel over the last two decades. You can imagine the anxiety shippers and ship owners are experiencing with this uncertain future.

Fastest Adopting Alternative Fuels

The latest data shows Methanol and Liquified Natural Gas (LNG) are the top two alternative fuels that shippers are leaning towards. According to DNV’s AFI numbers, new contracts by number of ships (excluding LNG carriers) over the last 12 months show alternative fuels are now 21% of the global fuel market with Methanol at 10% of the share and LNG at 7%.

Liquified Petroleum Gas (LPG) was at 2% and Ammonia was at the bottom with 1% of the share. Hydrogen has not shown any adoption among alternative fuels, despite its potential and promise as a zero carbon fuel.

Ship owners might not know which alternative fuel will become the de facto leader, but that isn’t stopping them from making big investments in alternative fuel engines.

Currently, less than 1 percent of ships in operation (or .69% to be exact) are equipped for alternative fuel, according to DNV. But that’s about to change.

Data from DNV shows nearly 16% of all ships on order in June 2024 will be equipped with engines to handle alternative fuels. LNG leads the alternative fuel competition with 9.3% of market share, followed by Methanol at 4.2% of the share of ships with alternative fuel capabilities. The American Bureau of Shipping (ABS) echoed the emergence and growth of methanol and ammonia as alternative fuels, and the anticipated growth in the use of the two fuels is expected to increase to 42% and 33% by 2050 respectively.

Many eyes were on Maersk earlier this year after it successfully refueled the world’s first large-scale methanol-power container ship with green methanol fuel. The completed bunkering finished with 4,300 tons of green methanol and 1,375 tons of biodiesel at the Port of Antwerp. Yang Ming Marine is also gaining attention for its upcoming adoption of sustainable biofuels across its fleet in Hong Kong, China, Singapore, and South Korea. Other major shipping companies, such as COSCO Shipping Group, have also joined the effort to incorporate biofuels into their operations.

Faced with an ever-changing landscape of green marine fuel options, shipowners may keep switching up their plans, hopping between different alternative fuels as the technologies and market conditions continue to shift. Maersk has also been switching to LNG on other vessels recently, likely due to the slower-than-expected production of green methanol, as reported by Lloyd’s List.

Future Shipping Costs with Alternative Fuels

Of course, everyone wants to know how these new shipping targets will impact the cost of future goods shipped around the globe. Can we expect the shift to lead to higher fuel prices passed onto the customer? Or will the shift to alternative fuels ignite additional cost savings?

The IMO will decide on a carbon pricing policy later this year and it will affect the global shipping industry. The final pricing policy is expected to be agreed upon in September or October of 2025, and become enforceable two years later.

The European Union Emissions Trading System (EU ETS) will also influence future prices, while the IMO is finalizing its carbon pricing model for the shipping industry. No fixed prices have been established yet, and some IMO member States suggest a global levy starting at US$150 per ton. The final price will depend on ongoing negotiations with the final price likely coming over the next few months. Ultimately, these two groups will also play a role later this year on the future prices of alternative fuels.