You Can Change The (Polluting) Shipping Industry By Switching To Renewables

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

As more businesses and residences around the world make the switch to renewable energy sources, the global shipping industry will feel significant effects. That’s because decarbonization of global energy supplies to meet Paris Agreement climate change goals will prompt what a new report is calling “radical implications for the fossil fuel cargo base that shipping serves.”

The result will be an aggressive and prolonged transformation for the shipping industry.

Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution!

The consequences for shipping markets of a major shift in energy consumption away from hydrocarbons and towards renewables and biofuels is the subject of a report prepared by MSI on behalf of the European Climate Foundation (ECF).

The models that are contained within the report show how changes in energy demand will affect commodity trade flows between regions. That, in turn, will force a shift in required shipping capacity, industry earnings, and asset prices across all segments of the shipping industry.

The analysis projects two demand frameworks – ‘Reduction’ and ‘Reference’ – designed to provide broad narrative and structure to long-term global energy demand. Yes, falling demand has happened before in the shipping industry, but the sustained nature of this forecast decline is unprecedented. The models suggest that tanker demand would fall year-on-year every year from 2025, and bulker demand would fall every year for fifteen years up until 2035.

By contrast, although the scale of the collapse in tanker demand in the 1980s is of a similar scale at 39%, it was only 5 years before tanker demand began to pick up again. That recovery isn’t going to happen this time around, because the demand for fossil fuels that need to be shipped will not rebound, due to the switch to recyclables.

Charts from the aforementioned MSI report. Used with permission.

Why are Shipping Markets so Important?

Shipping markets are integral to global supply chains, transporting energy, commodities, intermediate, and manufactured goods in huge volumes. Shipping is a key intermediary in facilitating the processing and consumption of hydrocarbon energy. Nearly half of all crude oil is first shipped to refineries before it is processed for consumption, and a quarter of oil consumption consists of refined products that have been shipped from refineries to the point of end-use. About 15% of global coal production is shipped, while the proportion of gas moved in liquefied natural gas (LNG) carriers is over 10% and rising fast.

The significant impact on coal exports and coal trade has wider ramifications for the logistics supply chain beyond those impinging on vessel owners and their financiers. Some of the allied maritime sectors exposed to the shift in dry bulk trade are the port sector, as well as suppliers of port and vessel equipment — including multiple land-based equipment and infrastructure providers.

The energy transition from hydrocarbons to renewables means that investors in shipping and ports are exposed right now to substantial financial risks. Accelerated action at a governmental level, technological advances, increased renewable use, public pressure, and increased regulatory and financial constraints will all contribute to this movement.

The question the authors pose is, “How fast? And what will be the effects on the shipping industry?”

By 2050, world coal consumption will fall by 80%, oil consumption halves, and gas demand drops by about a quarter, according to the scenarios generated by models in “Carbon Carriers: The Impact of Rapid Decarbonization on the Shipping Industry 2019.” While some sectors of the shipping industry, such as container ships, would be virtually unscathed, decades of falling demand for ships that have a significant proportion of hydrocarbon cargo mix will take place.

The results would be multi-decade declines in fleet capacity, earnings, and asset prices across the affected sectors. Ship owners would be forced to slash new ordering and to scrap uneconomic vessels.

What will Fuel Consumption Levels and Shipping Look Like in 2050?

In a scenario where average global temperature rise is successfully limited to 1.5 C degrees:

  • When oil tankers built today are 10-15 years old, they will command only a tiny premium over scrap metal. This halving of the tanker’s typical economic lifespan is due to a fall in utilization rates (the percentage of time the asset is being used) and the freight earnings the asset can command.
  • Both oil tankers and “dry bulk” ships (the type that carries coal, iron ore, and grains) face an unprecedented length of market downturn, threatening earnings for investors, and raising the risk of non-payment for lenders.
  • In total, the value of the world’s dry bulk ships more than halves from $195 billion in 2018 to $90 billion by 2030.
  • Tanker demolition totals will remain robust, as old, inefficient tonnage is removed from the fleet during an extended period of market weakness. With scrapping outpacing deliveries in each five-year window from 2030 onward the tanker fleet will enter a period of retrenchment, dropping 200 Mn GT by 2050, from around 275 Mn GT in 2030.

Shipowners and those who finance ships can prepare for decreasing fossil fuel demand and updating their fleets in several ways, according to the report’s authors.

The first ingredient is investing in more flexible assets. In the case of tankers, the crude market is projected to nosedive before the refined market, so companies operating coated tankers may be exposed to less near-term downside risk. For bulkers, smaller geared vessels are likely to see less downside that the larger gearless vessels which have traditionally been focused on the iron ore and coal trades.

The second ingredient for survival is focusing on more efficient assets. Vessels which are able to earn a premium in the charter market, for example due to lower fuel consumption, are likely to see their valuations less badly impacted than other vessels, in part as their life expectancy will be longer.

The final ingredient for survival will be a lack of speculative ordering. The authors affirm that it is difficult to overstate the transformation that static or shrinking cargo demand will inflict on the bulk shipping industry. However, the significant supply side adjustment – with the concomitant early scrapping and destruction of shareholder value envisaged – will prove fruitless if speculative orders continue to be placed.

One of the report authors, Stuart Nicoll, offered an exclusive comment for CleanTechnica on how much extra tonnage of steel will be scrapped under the Reduction scenario, if it would be enough to affect wholesale steel prices, and if such a scenario would make it cheaper to build wind turbines.

“I had to do a bit of work to estimate the steel content of each ship type going forward, but the conclusion is that the volume of steel from ship scrapping is so small in the context of the overall market that the impact would be minimal. We estimate the additional supply of scrap steel to be about 1 MnT per year on average post 2030, cf global demand of approx. 1.8 BnT. Even if scrapping was highly concentrated by region or country it is unlikely to influence prices.”

Final Thoughts

The shipping industry burns the world’s dirtiest fuel to move cargoes and passengers around the world. It is one of the biggest contributors to climate change, accounting for up to 3% of global emissions and 10% of transport emissions and is an integral part of the global economy, transporting around 80% of the world’s trade in physical goods.

We know who we are as consumers. Instead of protecting the planet that sustains us, we buy and buy and buy, which requires shipping of millions of containers across the seas to satisfy our material positive reinforcement needs. We figure we will deal with whatever comes by consuming more, but we can change our evil ways.

The diesel engine has been the workhorse of the maritime industry, so that ships are spewing enormous amounts of greenhouse gases into the atmosphere every year. Yet adaptability and speed of technology development in the maritime industry has persuaded the Norwegian government to cut those maritime greenhouse gas emissions in half by 2030.

Ultimately, if governments meet their commitments and enact the low carbon transition, the shipping industry itself will need to undergo a total change in mind-set. Shipping industry investors need to sit up quickly and, in like measure to Norway, reconceptualize how goods are transported globally if the industry is to adapt to the emerging renewable energy demand.

If they don’t, they may join a burgeoning group whose portfolios are filled with stranded assets.


Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Latest CleanTechnica TV Video


Advertisement
 
CleanTechnica uses affiliate links. See our policy here.

Carolyn Fortuna

Carolyn Fortuna, PhD, is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavey Foundation. Carolyn is a small-time investor in Tesla and an owner of a 2022 Tesla Model Y as well as a 2017 Chevy Bolt. Please follow Carolyn on Substack: https://carolynfortuna.substack.com/.

Carolyn Fortuna has 1269 posts and counting. See all posts by Carolyn Fortuna