Sunday, December 20 2020
This December, the Lloyd's Register Foundation remotely hosted three students from the University of Oxford for micro-internships. Over the five-day placements, they used HEC's digital collections to conduct a rapid literature review focusing on one of the Foundation’s big challenge areas - such as safety at sea and safety for a sustainable future. Aside from blogs, the micro-interns have produced social media posts and a short video discussing their research. In this blog, we learn more about James Derham's research on LNG transitions.
What can we learn from the literature on the transition to Liquefied Natural Gas (LNG) propulsion, and how can we use these successes and failures in order to create a hard business case for decarbonisation?
This paper will analyse literature from Lloyd’s Register’s HEC archives on the recent (and ongoing) shift towards LNG propulsion. Using this literature, certain barriers and impediments which slowed the adoption of LNG will be highlighted. Learning from this experience, this paper will propose potential solutions as to how, for the impending carbon-neutral propulsion revolution, these barriers can be overcome. Whilst carbon-neutral “technology is mature, and ready to be integrated" progress is slow. Carbon-neutral fuels are not available at price parity with their fossil fuel counterparts. Alongside high carbon-neutral fuel costs are the high initial costs of retro-fitting and restructuring the fuel supply. These impediments and obstacles make the likelihood of halving emissions by 2050, the aim of the IMO, low.
What is LNG?
LNG is a transient alternative, it will, as with Heavy Fuel Oils (HFOs), become obsolete. Carbon-neutral fuels, inter alia, hydrogen, ammonia and bio-alcohols, must replace HFOs and LNG as the majority fuels used by 2050. It is essential, however, that we analyse the experience of the LNG transition, in order to learn and improve future fuel transitions. LNG is the cleanest fossil fuel, and is highly abundant. Further to this, since January 1st 2020, the sulphur content of ships’ fuel must be no higher than 0.5 per cent m/m. Evidence shows that LNG, relative to HFOs reduces the emission of NOx by 85-90 per cent and SOx by almost 100 per cent. The business case for LNG can thus be made based on its ‘greener’ properties, and its high abundance, which should keep costs low for ship-owners. While LNG will enable ship-owners to keep emissions in line with IMO regulation, the business case for LNG propulsion still remains weak.
Why does the business case for LNG propulsion remain weak?
The root-cause of the weakness of the business case for LNG is the high initial cost for fuel providers and ship-owners to make the transition. Fuel providers are not keen to invest in the restructuring their supply chains whilst the demand from ship-owners remains low. Meanwhile The demand from ship-owners for LNG will remain low if “LNG is too difficult [and expensive] to buy.” The consequence is a sort of “chicken and egg” paradox, with neither fuel providers nor ship-owners willing to make the initial Capex. While this paradox may seem intractable, it is clear that the underlying problem is high initial cost, for gas suppliers to restructure supply chains, or for ship-owners to retrofit existing fleets. This disincentive ensures that the business case for LNG will remain weak. The experience from this failure to create a strong business case for a propulsion shift can be utilised to create a strong business case for carbon-neutral fuels over the next three decades.
With the LNG experience in mind, looking forward, how can we ensure that the transition to carbon-neutral fuels is not hampered by the same ‘chicken and egg’ paradox?
To break this paradox, the high initial cost of retro-fitting and restructuring the fuel supply must confer rewards on those who invest in new propulsion fuels and technologies. Rewarding the transition to carbon-neutral fuels requires global cooperation. Contemporary private sector initiatives, i.e. the ‘Getting to Zero Coalition, or ‘Poseidon Principles’ exemplify this. The lynchpin of both of these initiatives is global cooperation. The former requires global cooperation to corner and decarbonise the deep-sea market. The latter requires large scale, global, financing. However, despite these initiatives, there is still a lack of incentive for ship-owners to adopt carbon-neutral fuels. Take, for instance, the fact that bio-fuels, the only non-fossil fuel alternative to be adopted in commercial shipping, “account for only 0.1 per cent of final energy consumption”. Of course, the future of propulsion is complex, and bio-fuels may not be the answer to the decarbonisation problem. Multiple pathways towards the 2050 goal have been identified. One could make the case for individual carbon-neutral fuels, or for a widely variegated fuel mix that varies dependant on market specialisation or geographical location. The latter, a diverse mix of fuels, will be the reality of propulsion in 2050.
How can we ensure that carbon-neutral fuels make up the majority of this fuel mix in 2050?
Again, global cooperation is required to ensure that these rewards manifest to incentivise decarbonising infrastructure changes. In order to confer rewards on ship-owners/manufacturers and fuel suppliers who invest in carbon-neutral infrastructure, the cost of carbon-neutral fuel production and supply must be reduced, and the efficiency and performance of carbon-neutral propulsion methods improved. Global cooperation is the route to a solution that guarantees these rewards, which will strengthen the business case for carbon-neutral fuels, and incentivise a faster, more successful transition than the adoption of LNG. The ideal goal is that of a globally funded research body. The principle is that taxation, collected at a regional and national level by governments, funnelled into this global research fund, capable of selecting the best talent, would place this body in a position to decrease the cost of carbon-neutral fuels (at a production and supply level), and increase the performance of carbon-neutral propulsion methods. One such solution has been suggested by the ICS; a mandatory levy of $2 per tonne of fossil fuel purchased by ship-owners. However, this shifts the burden of raising capital for research entirely onto ship-owners. Should not taxation be levied from fuel suppliers as well? The incentive for fuel suppliers to contribute to a research fund is clear. Cheaper fuel production and supply methods will enable fuel suppliers to cut costs when supplying a rising demand for carbon-neutral fuels. Of course, this solution requires a level of global cooperation between commercial shipping operators, fuel suppliers and regional/national governments at a scale not previously seen. Yet, without global cooperation, and the global pooling of resources, decarbonisation will remain an insurmountable issue. In the case of LNG, the high initial cost for new infrastructure borne by ship-owners/manufacturers and fuel suppliers was not amortised by the rewards for making this investment. The cost of the fuel remains relatively high, and LNG propulsion methods are no cheaper or more efficient than HFO propulsion technologies. It is only through global cooperation, the likes of which not seen during the transition to LNG, that the business case for carbon-neutral fuels can be strengthened.
What can we learn from legislation introduced to strengthen the business case for LNG, and how can the carbon-neutral fuel transition be accelerated using this prior experience?
Policy makers have introduced pro-LNG legislation over the past decade. ‘Green-tickets’ enable ship-owners to enter ports with a substantial reduction in fees. However, for those who do not conform to these ‘green’ parameters, the higher cost can simply be passed onto consumers (i.e. ferry passengers, or consumers of cargo). Further to this, dual-fuel systems enable cleaner fuels (i.e. LNG) to be used in close proximity to the port, allowing ship-owners to be given a ‘green-ticket’. Once leaving the port area, ships can then revert to burning ‘dirtier’, cheaper and more energy dense HFOs. Legislation will be essential in setting the pace for the carbon-neutral fuel transition, and it is clear that for the transition towards LNG, its impact has been negligible. Indeed, learning from the LNG experience, it is clear that more stringent measures (i.e. carbon pricing) are required. Independent entities, such as Lloyd’s Register’s ‘Decarbonisation Hub’ will be essential in cultivating the consensus required between ship-owners and policy makers, and in facilitating a sustainable future. As well as passing legislation to support sustainability, governments and policy makers must also support the sustainability of business models. Ship-owners and fuel suppliers who make the high initial Capex on renewable fuel infrastructure can only remain competitive if they are rewarded for doing so. Indeed, the only way that the carbon-neutral fuel transition will take place at the pace and scale required to meet IMO regulations is through a globally funded research body. Again, this is only possible if taxation, collected at a regional and national level by governments, is levied for this purpose. This research body must be equipped with sufficient capital and talent to unlock new technologies that drive down the cost of fuel production and supply, and increase the performance of carbon-neutral propulsion methods.
What other lessons can we learn from the experience of LNG?
The shift to LNG was barely affected by consumer pressures. By contrast, over the next three decades, ship owners and fuel suppliers will have to operate alongside growing “environmental consumer pressures”. These forces will be most intense in the sectors to which consumers are closely linked, inter alia: container shipping, cruises and ferries. These pressures will have a powerful, formative influence on the rate with which the transition to carbon-neutral fuels occurs. Indeed, they could be harnessed by ship owners and fuel suppliers, and utilised to create a competitive advantage. Again, conversely to the LNG experience, perhaps consumers will be willing to pay a small premium for goods to be transported/passenger ferries to run with carbon-neutral fuel, as time progresses and pressure from the public sphere amounts. Alongside tax breaks, government subsidies and, crucially, research by a globally financed body, this consumer premium could be essential in bridging the gap between price parity and a cheaper, more competitive price for carbon-neutral fuels.
Breaking this ‘chicken and egg paradox’ requires global consensus. The high Capex must be rewarded, otherwise, the decarbonisation problem will remain unresolved. The success of decarbonisation in commercial shipping relies solely upon rewarding those fuel suppliers and ship manufacturers who make this high initial investment in new infrastructure. The former should be rewarded through reduced fuel production prices. The latter should be rewarded by reduced fuel consumption prices, and more effective propulsion technologies. The key to these rewards is research, which can only be undertaken, on the required scale, by a globally funded body that is capable of attracting the best talent. Governments should carry out the collection of taxation to fund this research body. Before retro-fitting fleets and restructuring supply chains, money should be spent on trying to find new solutions and technologies that could ease the transition, and incentivise the fuel transition. Finally, new forces must be taken into account, consumer pressures for instance, which did not affect the LNG transition. These pressures will be formative, altering the pace and direction of the carbon-neutral propulsion revolution.
This question arose from research into the most recent (and ongoing) fuel transition, LNG as a method of propulsion. There is a gap in current research as to how past fuel transitions can be used to tackle the impending carbon-neutral propulsion revolution. This article briefly summarises what can be learned from the successes and failures of the LNG transition, and attempts to provide potential solutions to the impediments which slowed down the adoption of the fuel. The literature used consisted of a series of digitised cooperate publications from Lloyd’s Register’s HEC archives, online articles, official regulation from the IMO. This article was also informed by the Lloyd’s Register’s Decarbonisation Hub launch, as well as two interviews conducted with Lloyd’s Register LNG and Special Technologies experts. The following literature was used in the research process for this article.
From the HEC Archives:
i. 'Lloyds Researching Nuclear Power for Ships', Australian Maritime Digest, Iss. 187 pp. 4-5 (Feb 1, 2010) (AUSMEPA, Canberra)
ii. Aagesen, J. 'LNG - Fuel of the Future?' Horizons (May 2011)
iii. Boardley, T. 'The shipping world is fast becoming a more complex place' Lloyd's Register Horizon Supplement: Technology and Innovation in Shipping (February 2012)
iv. Carlton, J.S. Smart, R. and Jenkins, V. 'The nuclear propulsion of merchant ships: Aspects of engineering, science and technology' Journal of Marine Engineering and Technology, Vol.10 No.2, p47-59 (2011)
v. Carnie, P. Cheng, F. Fang, I. Incecik, A. et.al. Global Marine Trends 2030 (2013)
vi. Lloyd’s Register and UMAS, Zero-Emission Vessels: Transition Pathways (January 2019)
vii. Lloyd’s Register, 'Gearing up for a decade of decarbonisation' Horizons (December 2019)
viii. Lloyd’s Register, 'What's Happening in our world' Horizons (March 2020)
ix. Poulsson, E. 'The 4th Propulsion Revolution' Horizons (March 2020)
i. Bergman, J. Green fuel options for fuel cells: key takeaways Riviera Publications (Dec, 2020) Link: https://www.rivieramm.com/news-content-hub/green-fuel-options-for-fuel-cells-key-takeaways-62215
ii. Harrabin, R. Climate change: Fertiliser could be used to power ocean-going ships (Feb 2020, BBC) Link: https://www.bbc.co.uk/news/business-51548361
iii. Jallal, C. Hydrogen and fuel cells: ensuring availability, storage and distribution Riviera Publications (Dec 2020) Link: https://www.rivieramm.com/news-content-hub/hydrogen-and-fuel-cells-ensuring-availability-storage-and-distribution-62221
v. Lloyd's Register, ‘Toward the tipping point: new research provides a reality check’ Lloyd’s Register: Renewable Energy - Latest Research (Feb, 2018) Link: https://www.lr.org/en-gb/latest-news/renewable-energy-latest-industry-research/
vi. McGrath, M. Climate change: Speed limits for ships can have 'massive' benefits (Nov 2019, BBC) Link: https://www.bbc.co.uk/news/science-environment-50348321
vii. Murray, A. The Foul -Smelling Fuel that could power big ships (Nov 2020, BBC) Link: https://www.bbc.co.uk/news/business-54511743
viii. Senior, M. Summit aims for clean-up of shipping industry (Nov 2020, BBC) Link: https://www.bbc.co.uk/news/science-environment-54958363
ix. Snyder, J. Hydrogen fuel cells becoming viable in maritime sector Riviera Publications (Nov, 2019) Link: https://www.rivieramm.com/news-content-hub/hydrogen-fuel-cells-becoming-viable-in-maritime-sector-56714
x. Snyder, J. The Business Case for Methanol, Riviera Publications (Dec, 2020) Link: https://www.rivieramm.com/news-content-hub/the-business-case-for-methanol-62186
xi. Tattini, J. and Teter, J. IEA Report: International Shipping: More Efforts Needed (June 2020) Link: https://www.iea.org/reports/international-shipping
xii. Watson, W. Why are we building gas-powered ships? (Dec 2020) Link: https://www.bbc.co.uk/news/uk-scotland-51114275
xiii. Wingrove, M. Hydrogen and Fuel Cells will Future-Proof Shipping Riviera Publications (Dec, 2020)
This debate could be expanded by looking at other fuel transitions (i.e. the case for nuclear powered propulsion). Looking at past fuel transitions and drawing out parallels for the impending carbon-neutral transition is an essential exercise. The following literature will be useful in conducting research along these lines:
Literature on nuclear propulsion from the HEC archives:
i. International Atomic Energy Agency, Nuclear Ship Propulsion (1961, IAEA)
ii. Kalmanson, A.G. Nuclear Powered Merchant Ships - Some Legal and Regulatory Considerations (1975)
iii. Lloyd’s Register ‘....And the Alternatives? Renewable energy from the sun, wind, oceans and the earth's core are all possible. But on long term economics, nuclear seems to win again.’ 1001A1 (April 1986) Cell no. in LR Publications: 668
iv. Lloyd’s Register, ‘A Future with e=mc2? What happens when we run out of supplies of oil, gas and coal? Is the energy of the sun - nuclear fusion - the answer?’ 1001A1 (April 1986) Cell no. in LR Publications: 661
v. Lloyd’s Register, ‘Lloyd's Register of Shipping and Atomic Energy’ vol.2 1001A1 (1958) Cell no. in LR Publications: 1992
vi. Pocock, R.F. Nuclear Ship Propulsion (1970, Ian Allan)
vii. hring, M.W. Nuclear Propulsion (1960, Butterworths)
Literature on methanol propulsion from the HEC archives:
i. MER, Exploring the methanol option (1994)
ii. Nakamura, Y. Research on methanol-fuelled marine diesel engines (1992)
Comparative literature on various carbon neutral fuels from the HEC archives:
i. Ishida, M. Jung, S. Nomura, T. et.al. Combustion of alternative fuels in a dual fuel diesel engine for low emissions (2005)
ii. Macintyre, R.R. Ship fuels alternatives to oil (1978)
iii. MER, A Clean Green Engine (1993)
 'Lloyds Researching Nuclear Power for Ships', Australian Maritime Digest, Iss. 187 pp. 4-5 (Feb 1, 2010) (AUSMEPA, Canberra)
 IMO, ‘Sulphur 2020 – Cutting sulphur oxide emissions’ Link: https://www.imo.org/en/MediaCentre /HotTopics/Pages/Sulphur-2020.aspx
 Aagesen, J. 'LNG - Fuel of the Future?' Horizons (May 2011).
 Tattini, J. and Teter, J. IEA Report: International Shipping: More Efforts Needed (June 2020) Link: https://www.iea.org/reports/international-shipping
 Poulsson, E. 'The 4th Propulsion Revolution' Horizons (March 2020)
 Lloyd’s Register and UMAS, Zero-Emission Vessels: Transition Pathways (January 2019)
Disclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily represent those of the Lloyd’s Register Group or Lloyd’s Register Foundation.