The shipping industry is speeding up its environmental transition and using the opportunity provided by the emergence of new, particularly incentivizing standards to find solutions that are better for the environment and for our oceans. Seizing this opportunity for innovation, Total has leveraged its integrated business model to forge an ambitious partnership based on liquefied natural gas with CMA CGM, which will have a fleet of more than 20 LNG-powered ships by 2022.
New environmental standards for the international shipping industry
A new International Maritime Organization (IMO) regulation designed to reduce the sulfur content of marine fuels will has come into effect on January 1, 2020. By setting a sulfur content limit for marine fuels of 0.5%, versus 3.5% today, the new sulfur cap forces shipping companies to significantly reduce their vessels' sulfur oxide (SOx) emissions.
Generated by the fuel used in ships, which is primarily heavy fuel oil derived from crude oil distillation, these SOx emissions are responsible for a wide range of health and environmental issues.
At the same time, shipping is the backbone of the global economy. A massive 90% of world trade is carried out by sea, via 90,000 ships that consumed nearly 2 billion barrels1 of heavy fuel oil in 2018 as they transported all kinds of goods. According to the OECD, international freight volumes will grow by more than fourfold between now and 2050, resulting in a rapid increase in the number of merchant ships each year.
In addition to sulfur oxide, the combustion of heavy fuel oil also generates greenhouse gas emissions (GHG), with shipping accounting for 2 to 3% of the world total.
Leveraging LNG to meet environmental standards
For shipping companies that have to adapt now to ensure compliance, the new IMO regulation represents a challenge that is both technical and financial. "Fuel is the most volatile cost item, but also the most important in terms of the industry's environmental impact," says Farid Trad, Head of Energy & Financial Markets at CMA CGM, a world leader in maritime transport and logistics whose fleet of more than 500 vessels operates on more than 200 shipping lines worldwide. In this mature market, which is "investment-hungry, with low margins and competition in all countries, the key competitiveness factors are optimized flows, fleet deployment and a differentiated offering."
Shipping companies therefore have three options. They can:
- Transition to low-sulfur marine fuel, which is significantly more costly than the fuel currently being used.
- Install exhaust gas cleaning systems, commonly known as "scrubbers," which can be fitted onto a vessel's exhaust system to reduce the sulfur content of its emissions. This technology represents a significant investment and is also subject to the shadow of uncertainty surrounding regulatory changes regarding its use in certain countries.
- Use alternative energy sources such as liquefied natural gas (LNG). This solution requires the construction of ships with innovative propulsion and fuel storage systems, representing a cost differential that can be tens of millions of dollars per unit.
But LNG bunker, as it is known in the industry, offers additional benefits. As Farid Trad says, "it meets the requirements for reducing SOx emissions and also generates around 20% fewer CO2 emissions. As a comprehensive solution that is immediately available, it represents an essential step in our energy transition." CMA CGM chose this option based on its results, which show that LNG propulsion reduces:
- Sulfur oxide and fine particulate emissions by 99%.
- Nitrogen oxide emissions by up to 85%.
- Carbon dioxide emissions by around 20%.
"We are the only company to have invested heavily in the construction of ships powered by LNG bunker," says the CMA CGM executive. "We'll have 20 vessels in 2022 — nine 23,000-TEU2 mega-ships, five 15,000-TEU vessels and six 1,400-TEU container ships."
A long-term partnership between CMA CGM and Total
The initiative by CMA CGM gave rise to a partnership with Total. "To meet a challenge of this kind, you need a shipping company willing to invest, port authorities willing to allow LNG operations in their port and, most importantly, an LNG supplier like Total that is willing to get onboard," explains Farid Trad. Thanks to their decade-long relationship, the two French companies were able to work together to address the challenges associated with the new regulation. In 2017, they signed an agreement covering the supply of around 300,000 tons of liquefied natural gas a year for 10 years, starting in 2020. This volume, unprecedented in the history of LNG bunker, will fuel CMA CGM's nine newbuild container ships, which are scheduled for delivery from 2020 onwards.
The agreement sent a strong signal to the market and represented a real example of risk-taking in terms of competitiveness. "But it was also a decision that launched the market," says Farid Trad. "With a company as big as CMA CGM willing to take this step, the market has every chance of success. The contract is signed and we really hope that, with Total's help, LNG bunker will play the role it deserves in maritime transportation."
Jérôme Leprince-Ringuet, Managing Director of Singapore-based Total Marine Fuels Global Solutions (TMFGS), agrees with this analysis. "The conditions for making innovative decisions about changing fuel have never been more favorable," he comments. "We're confident that this agreement has triggered some serious thinking and we remain optimistic about the LNG bunker market taking off in the coming years."
With access to Total's integrated LNG offering, TMFGS is "the only company capable of tapping synergies between upstream operations (production) and downstream operations (distribution to end customers). This model enables us to provide the best possible support to our customers."
From a cost perspective, the purchase price of LNG bunker is much lower than that of heavy fuel oil, but the cost of delivery — including the supply ship and gas terminal — is higher, which balances out the overall cost. "The big challenge for this nascent market lies in the logistics infrastructure, which still needs to be optimized," says the head of TMFGS.
All eyes are now on the port authorities, which have a critical role to play in fostering the emergence of an LNG bunker market. In some ports, financial advantages are offered to ships that have switched to gas. These incentives further enhance the economic viability of LNG. "Port authorities are very interested in the switch to gas, because the resulting reduction in particulate matter and other pollutants provides a tangible response to local residents concerned about air quality in the port's vicinity," explains Jérôme Leprince-Ringuet.
LNG bunker: Marine fuel of the future?
The IMO's sulfur cap represents a major change for the world of maritime transportation. And many industry players recognize that LNG bunker enables them to meet the requirements imposed by the new regulation, while also reducing CO2 emissions. "The shipping industry has committed to a CO2 roadmap that aims to halve its greenhouse gas emissions by 2050 compared to 2008 levels, despite growth in international trade," Jérôme Leprince-Ringuet points out. Deploying LNG bunker on a large scale, and ensuring its competitiveness, will already be a big step in the right direction.
At a later stage, other innovations will emerge, such as bioLNG, made from the methanation of biomass, or ammonia-powered engines, which operate on the same principle as fuel cells. Other solutions might lie in ongoing work on ship hydrodynamics, in digital technology, which is increasingly present, or perhaps even in the use of sails. There are many projects in the pipeline, but LNG will be able to hold its own for some time. In fact, depending on the calculation method used, the 193.5 trillion cubic meters of proved reserves worldwide represent between 55 and more than 100 years of consumption.
"We expect Total to pursue its development and innovation efforts in the area of LNG and biofuels to strengthen our partnership and support our competitiveness," says Farid Trad. This is good news for Jérôme Leprince-Ringuet, who believes that "so many projects are emerging with so much creativity and enthusiasm. We're going to experience an energy revolution over the next ten years. And every step will provide its share of excitement."
1 One barrel equals 42 gallons or just under 159 liters.
2 Twenty-foot Equivalent Unit: Unit used to measure the capacity of a container ship or terminal.