The next few years are going to put Middle East’s shipping industry through stormy seas. With oil and gas prices at record levels, combined with heightening geopolitical volatility, the costs of marine fuel have been anything but stable — and now incoming regulatory changes internationally to drive the low carbon agenda are set to add even more pressure to the region’s ship owning and chartering community.
The state of play
As the second-largest trade partner to the Gulf Cooperation Council (GCC), comprising almost 7 percent of its exports in 2020, the European Union’s (EU) recent decision to incorporate maritime transport into its Emissions Trading Scheme (ETS) holds considerable weight.
The amendment requires all ships calling at EU ports, regardless of where it is flagged, to purchase carbon allowances to cover their emissions, with the charterer held primarily responsible for payments. The carbon price as of May 24, 2022, is riding at EUR82/tonne (AED314/tonne) of CO2; with current estimates of 3.15 CO2 emitted per tonne of Very Low Sulphur Fuel Oil (VLSFO), charterers face additional costs of approximately EUR258 for every tonne of fuel it burns in transit to and from the EU.
Not only that, but there is appetite among MEPs to expand the scope of the ETS to incorporate other forms of greenhouse gases, including methane, generating mass uncertainty for charterers of LNG-fuelled ships with well-documented challenges when it comes to methane slip. This development, if approved, creates uncertainties of costs for both the existing Middle Eastern oil-fuelled vessels, and the growing LNG-fuelled fleet in the region.
Pulling global purse strings
With both marine gasoil and its alternatives becoming increasingly regulated worldwide, charterers will need to consider other means of reducing carbon from their shipments to spare themselves from debilitating costs. Shipowners, meanwhile, must recognise the clear business case for making lower carbon vessels available to their customers to capture this shift in demand – particularly if global economies continue to turn to the Middle East for oil products in the wake of Russian sanctions.
With shipping’s inclusion into the ETS to be activated as soon as 2023, hedging bets against the next generation of more energy efficient vessels is not a realistic option for charterers to reduce their fuel consumption, emissions, and resulting carbon costs. Panacea solutions like hydrogen, renewable gases, and other clean fuels generate well-deserved excitement, but these solutions will not be available at scale in time to address the challenges of the immediate future.
Vessels up to nine years in age have only delivered value against one-third of their expected 30-year operational lifespan; yet as of 2021, these vessels currently comprise 31 percent of the world’s oil tanker fleet, and more than half of all vessels on the water. Certainly, today’s embryonic solutions may achieve viable scale and commercialisation across the next 15-20 years, but the question remains as to whether retrofitting the by-then aged existing fleet with these solutions will be justifiable.
What is certainly not justifiable, affordable, or sustainable, is leaving the current fleet to churn out emissions at its current rate for the next two decades while the above question awaits a solid answer. The industry clearly requires a means to improve the efficiency of the existing fleet if it hopes to control OPEX and contribute sustainably to a low emission, low carbon future.
Weathering the storm
The capacity of energy efficient technologies to drive progress under such restraints is a testament to the engineering capability and ingenuity of the maritime sector. Far from a small sub-segment on the fringes of naval architecture, energy efficient technologies belong at the heart of the industry’s efforts to decarbonise.
Wind power hardly needs to prove its credentials as the precursor to all forms of marine propulsion; and now, those who previously underestimated its applicability to the modern seascape are changing their tune. A number of wind propulsion solutions, from rotor sails to kites and rigid wings, augment core engines with renewable power for proven and considerable fuel efficiency improvements for international trade vessels.
Emissions reduction potential ranges from product to product, with BAR Tech’s own patented solution leading the charge with a 30 percent curb at full-scale deployment – trimming nearly a third off the looming carbon costs for trade with the EU. Almost all wind propulsion solutions are applicable as both a new build and a retrofit solution, unlocking enviable efficiency gains for the Middle East’s existing fleet of tankers and bulkers.
Investing in tomorrow, today
Emissions reduction technologies have a key role to play in enabling the decarbonisation of the existing fleet, and should form a cornerstone of any endeavour to improve the emissions performance of global shipping.
Wind propulsion provides shipping with a renewable resource unlike any other option on the market – it is free, accessible even on the most remote trade routes, and takes the edge of increasing costs for fuel both now and across the remaining lifespan of the vessel as alternative fuels mature.
As global attitudes and policy towards bunker reliance and vessel emissions change, emerging now in Europe but potentially globally as the International Maritime Organization (IMO) endeavours to keep pace, the fallout of additional financial responsibility for the Middle East’s shipping industry will remain under control as long as investment into decarbonising technology remains a priority.
John Cooper, CEO of BAR Technologies.
Follow us on
