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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Wind Power Could Bring Seaborne Transportation Full Circle

  • A dry bulk ship outfitted with special sails has set out on its first voyage.
  • Scientists are studying how the use of wind power can reduce emissions at sea.
  • Two years ago, the World Bank issued a recommendation to avoid LNG bunkering, saying hydrogen and ammonia offer the best long-term solutions as the shipping industry.
Ships at sea

A dry bulk ship chartered by agricultural and bioindustrial specialist Cargill Plc has set out on its first voyage after being fitted with special sails aimed at studying how harnessing wind power can lower emissions in the shipping sector. Marine transport is one of the biggest consumers of oil, accounting for ~7% of oil consumption worldwide and 3% of global CO2 emissions.

"It is risk taking. There is no guarantee ... that the economics are going to work. But it is up to us to show the industry what is possible and hopefully get some more people confident around this technology," Jan Dieleman, president of Cargill's ocean transportation division, has told Reuters, adding that they plan to scale the operation if they get positive results. The five-year old Pyxis Ocean has been retrofitted with large wing sails measuring nearly 40 meters in height known as WindWings, with Cargill hoping to recoup the costs through fuel savings. Wind power is likely to be a far cheaper source of energy than another clean energy solution proposed by the World Bank: hydrogen.

Two years ago, the World Bank issued a recommendation to avoid LNG bunkering, saying hydrogen and ammonia offer the best long-term solutions as the shipping industry continues to adopt increasingly stringent measures to decarbonize.

Unfortunately, the economics of green hydrogen--the type favored by most governments--are not in its favor. Green hydrogen--i.e. Hydrogen made through the electrolysis of water using renewable energy--costs about $5 per kilogram compared to $1.50 per kilogram for gray hydrogen, which is created from natural gas, or methane, using steam methane reformation(SMR). Currently, 99% of U.S. hydrogen production is sourced from fossil fuels, with 95% from natural gas by SMR. Although the DOE is sponsoring a “moonshot” project to reach $1 per kilogram within a decade, it would require a huge scale-up of renewable electricity for green hydrogen costs to fall to such levels. For instance, meeting the EU green hydrogen target would require ~1,000 terawatt-hours of new solar and wind installations, nearly double the bloc’s installed capacity.

Related: Production Starts At Phase-11 Of The World’s Largest Gas Field

The World Bank recommendation has faced plenty of backlash from industry representatives who say the industry cannot afford to wait for a perfect solution to address climate change. Instead, the shipping industry favors the adoption of technologies that can boost LNG’s carbon credentials.

Cheapest marine fuel

In its report, the World Bank presents an overview for policymakers regarding its perspective for the industry, saying that the industry needs to abandon fossil-based bunker fuels and turn toward zero-carbon bunker fuels in order to lower and ultimately eliminate its climate impact.

In addition to its overview of the issues, the World Bank presented a report entitled “The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping.” The report says LNG is likely to play only a limited role in the decarbonization of the shipping sector even in the short-term, and recommends that countries should avoid adopting public policies that support LNG as a bunker fuel due to the risk of methane emissions and other highly damaging GCG emissions. In a twin report, entitled “The Potential of Zero-Carbon Bunker Fuels in Developing Countries”, the World Bank identifies ammonia and hydrogen as the most promising zero-carbon bunker fuels for the shipping industry.

However, panelists at the opening of Singapore Maritime Week representing owners, charterers and shipbuilders have opposed that idea and instead see switching to LNG as one plausible, interim solution to a low-carbon transition that can happen sooner rather than later.

BHP CEO Vandita Pant has counter-argued that the maritime industry risks becoming “a laggard” if it fails to use LNG at least as a stop-gap measure and instead waits for “a perfect solution to come”.

But truth be told, the biggest reason why shipping magnates are not so keen on ditching LNG is simply due to the fact that it’s the cheapest fuel available.

According to data by international accredited registrar and classification society, DNV, over the past several years, Henry Hub natural gas has consistently ranked at or near the bottom of marine fuel prices when ranked by heating value. Henry Hub natural gas is selling for $2.56/MMbtu, the lowest among the six fuels ranked. Adding a $4/MMBtu liquefaction cost means it still remains considerably cheaper than low-sulfur Marine gasoil (MGO).

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On the investment side of things, commodity shipping stocks have pulled off from their February/March highs but several remain solidly in the green. Teekay Tankers (NYSE: TNK) and Tsakos Energy Navigation (NYSE: TNP) are leading with gains of 55.5% and 37.0% in the year-to-date, respectively.

By Alex Kimani for Oilprice.com

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