The shipping sector contributes only 11% of global transportation emissions but remains the “dirtiest” emitter due to its use of high-sulfur content heavy fuel oils. Combined with growing demand over the next three decades due to the expansion of global trade, booming demand in commerce, and emergence of new manufacturing hubs, CO2 emissions are expected to consequently rise as well. Currently, the global shipping sector emits approximately 0.9 GT of CO2 and is expected to rise to as much as 2.5 GT of CO2 in the high scenario in the next three decades. The forecast puts the industry 2.1 GT of CO2 above its 2050 target of reducing emissions by 50% compared to 2008 levels. Even in the low scenario forecast the global shipping sector will emit 1.2 GT of CO2 and end up 0.8 GT of CO2 above target.
To counter this trend, the International Maritime Organization (IMO) adopted its greenhouse gas emissions strategy in 2018 during its 72nd session, dubbed IMO 2050. The strategy is a multipronged approach for overall emissions reduction that included regulatory tools, data collection on fuel consumption, and sustainability and energy efficiency targets. The industry governing body addressed the “dirty” part of its operations, implementing IMO 2020, a cap on sulfur limits below 0.5% for fuels to curb rising SOx emissions.
Despite finding early success with IMO 2020 – the industry is expected to see a 77% drop in SOx emissions in its first year – low-carbon and zero-carbon energy sources will be required to address the rising CO2 emissions. Unlike its aviation counterpart, IMO does not have a clear choice or commitment to a future energy source. Without a consensus answer from the governing body, the industry has taken it into its own hands to develop, test, and deploy alternatives. This has led to the rise in innovation activity in the early 2010’s and has since witnessed continued diversification in the types of potential energy sources. While LNG and bio-based fuels were the initial growth drivers, new forms have emerged including batteries, hydrogen, ammonia, and even solar- and wind-powered vessels.
Liquified natural gas (LNG)
LNG continues to be the only widely available alternative energy source for powering the shipping sector. Given that the majority of the world’s LNG is transported by ship and the market continues to grow, the complementary infrastructure for LNG-powered vessels, LNG bunker vessels, and port infrastructure has also grown steadily over the years. While LNG is an immediate option for decarbonization, it alone would not meet the target set for 2050. Mid- and long-term options for LNG include the use of liquefied biomethane (LBM) and liquefied synthetic methane (LSM) as potential scalable alternatives. Patent activity for LNG-powered vessels saw its initial rise in 2010 and has largely plateaued since 2015 with much of the developments in the commercial scale.
Unlike the aviation industry, bio-based fuels for shipping includes a wide range of potential drop-in replacements that require no modifications in engines or fuel infrastructure. The most direct alternatives include bio-based fuel oil and bio-based middle distillates, that would replace the conventional heavy fuel oil and middle distillates used today. However, there is ongoing investigation of leveraging other forms of bio-based fuels, such as FAME biodiesel, renewable diesel, and bio-based pyrolysis oil as possible drop-in replacements. Although remains concerns with regards to engine operation and maintenance with the introduction of these new fuel types into the system. Interest in bio-based fuels began to rise in 2014, as part of a third wave following road transport and aviation and continues today as developers are exploring a wide range of fuels.
Innovation activity in the electrification of the shipping sector has steadily grown over the past two decades. For larger vessels, electrification largely remains in hybrid applications rather than full electrification. On-board battery systems can be used for electric propulsion, peak load shaving, acceleration assistance, and regenerative braking. In terms of full electrification, applications have largely been focused on smaller vessels, such as yachts and ferries, that typically operate significantly shorter distances and in regions with growing regulations on air quality control. Patent activity in the early years (2009 to 2013) largely centered around auxiliary power applications and smaller vessels, as the recent interest has shifted towards larger vessels.
Hydrogen and ammonia
While two distinctly different molecules, innovation activity in hydrogen- and ammonia-powered vessels have largely occurred in parallel as both fuels can be either directly combusted in a modified engine or used to generate electricity via fuel cells. Both share similar qualities in terms of emissions, neither emitting CO2, SOX, or other particulates when combusted. Due to the energy limitations of battery power and unclear scalability of bio-based fuels, hydrogen and ammonia have gain significant attention in recent years as the future energy source for shipping. Though challenges remain in terms of operations and maintenance, on-board fuel storage, and establishing the required port infrastructure to support the new fuel. Patent activity remains minor compared to others but is a key area to monitor as interest in a hydrogen-based economy continues to grow.
Methanol and other alcohols are actively being investigated as a potential blendstock and full drop-in replacement. Much of the interest around methanol finds its roots in the road transportation sector, where it failed to gain traction as a blendstock with diesel fuel – only a few countries blend methanol in its diesel and mostly at small percentages. However, the success of alcohols – specifically ethanol – as a blendstock and full drop-in replacement continues to drive interest in the potential of utilizing the fuel for the shipping sector. Most activity has been largely driven by one or two consortiums and remains in the testing phase. Innovation activity has closely followed the interest level, staying relatively flat over the past decade.
Synthetic fuels, often referred to as electrofuels or e-fuels, presents a technology platform capable of producing a wide range of hydrocarbon-based fuels for the shipping sector. The conversion of CO2 and hydrogen can result in a wide range of final products, including methane, heavy fuel oil, middle distillate, and diesel. Synthetic fuels are currently in the lab-stage and shipping fuels have not been a high priority in development as most attention is focused towards the road and aviation sector, which is reflected in the minimal change in innovation activity over the past decade.
Solar- and wind-powered ships utilize a combination of the two for propulsion and auxiliary power generation. Despite the zero-emission benefits, neither form is likely to fully replace fuel-powered propulsion given the sacrifice in travel speeds. However, conceptual models and early-stage testing has demonstrated the use of solar and wind in improving overall energy efficiency of vessels, though largely minimal. On the other hand, nuclear-powered vessels are commercially operating today, but remain limited to niche applications and geographies. While patent activity has seen a slight uptick in recent years, renewables powered ships continue to be a conceptual idea.
With growing patent activity over the past two decades, and what is appearing to be a very unclear decarbonization roadmap for the shipping industry, there are unique opportunities for technology providers and fleet operators. Companies are advised to monitor the following trends and activities in the coming years.
There are 3 pathways emerging for the decarbonization of shipping that will leave several energy options out of the picture, but also likely to converge in the future.
The American Bureau of Shipping unveiled three alternative fuel pathways dubbed – Gas, Heavy, and Liquid. The Gas pathway will see an initial uptick in LNG-powered vessels in the near- and mid-term, which then gradually transitions to a hydrogen-powered shipping sector. The Heavy pathway utilizes liquefied petroleum gas (LPG) in the near-term and evolves to ammonia. The Liquid pathway sees the adoption of bio-based fuels that results in the rise of synthetic fuels in the future. Note that these three pathways leave out batteries, alcohols, and renewables. While it is likely that alcohols and renewables struggle to gain traction in the industry, it remains too early to discount the potential of batteries, especially in short range applications.
The lack of consensus by the shipping industry today will lead to several viable options and opportunities across the entire value chain.
With such a wide range of energy sources, each with varying levels of challenges in supply limitations, ongoing technology developments, and operations and infrastructure, it paralyzes the industry as fleet operators plan their future. Picking a “winning” energy source is critical as investments and operational changes will likely lock fleet operators to their bet for 30 to 50 years – switching halfway may been far too costly or impossible to do at all. Fortunately, a universal fuel may not be necessary, as players in the shipping industry have varying sizes and types of vessels, operate a wide spectrum of routes, and may be closely coupled to industries capable of offering adjacent benefits. Identifying the right end-user will be key for fuel providers and port operators moving forward.
Major shipbuilding stalwarts are spreading their bets and leaving it to fuel producers and fleet operators to carve out market share in the future of the industry.
With a wide range of potential energy sources major shipbuilding companies are preparing to provide what the industry will need through a diverse research and development strategy. However, the need for fleet operators to prepare across fuel storage, handling, and combustion systems for the potential waves of decarbonization remains critical in ensuring flexibility as the industry evolves. Energy providers looking to build strategies around any particular fuel will need to engage quickly with shipping companies or risk losing future market share to one of the several competing fuel options.
The uncertainty of the decarbonization roadmap of the shipping sector is both risky and exciting for players across the value chain. The innovation activity trends in the various energy sources have yet to reach a point of divergence with only one or two winning solutions, likely alluding to a future of mixed fuels for the sector. With LNG-powered vessels continuing to gain traction, the pathway should eventually lead to a hydrogen-based shipping sector. However, the same amount of activity continues to pick up for bio-based fuels as well, which would lead the industry down a starkly different path with the rise of synthetic fuels. Regardless of the pathway, or pathways, the shipping sector will eventually go down, the key opportunity today falls on the various sub-sectors of the shipping industry. Each with their own unique set of criteria, allowing them to dictate their own decarbonization strategy by establishing supply chains unique to their own requirements.