The Exchanges

Q Excited to have you and talk about shipping. Let's start with the high-level context. Can you place shipping in the broader context of decarbonization, or I guess in, before we get to decarbonization, in the broader context of emissions, like how much of global emissions is ascribed to shipping and to maritime, and sort of how big a problem do you view it in the broader context?

A Yeah, sure. I mean, uh, so shipping as a sector contributes about three percent to global emissions. And so in the large scheme of things, that's not a lot, right? It's one gigaton compared to about 40 gigatons. Um, but shipping plays an integral role in the global supply chain. So if we don't decarbonize shipping, you wouldn't be able to get green products. You wouldn't be able to get green solutions. Uh, shipping is responsible for transporting 90% Of goods around the world. So this means that what you own probably came on a ship, and if it didn't, the raw materials of what you own probably came on a ship, right? So this is how important shipping is. And yet it's, um, I would say mostly an invisible industry. At least that's how I'd seen it before I came into shipping. Um, and shipping only comes into the limelight when something bad happens or when we don't receive our Amazon boxes, right?

AI assessment note: “shipping as a sector contributes about three percent to global emissions.”

Q Tell me about what's happening there. What are the What are the challenges with it and how, how big a solution is that?

A Yeah, we, I mean, we have a, we have a pilot there too. Um, again, I would say first of all that, you know, um, carbon capture in itself, even on the land side is expensive. So doing carbon capture on board vessels has no economies of scale. You're essentially building little factories, chemical factories on board vessels, right? So certainly you're not doing this for cost. Um, but we see this As an important interim solution to explore, and I use the word explore because it's not very mature, um, because if you just look at the numbers and you look at how many vessels are on the water today, um, which is 65,000, and how 80% of them are going to be still on fossil fuel by twenty-thirty, and probably about 30% in twenty-fifty, they need to decarbonize as well. So, so carbon removal needs to be part of the portfolio solution. Um, So, uh, for us to think about onboard carbon capture, um, we think as long as, um, technologies that are demonstrated on land can be miniaturized, they can put, put on vessels. They're going to be expensive from a CapEx perspective. They're actually going to be expensive on an OpEx perspective too, because you have to burn more fuel, uh, to capture CO two because the scrubbers and the strippers all take energy to operate. More importantly is really that carbon value chain. What happens downstream to the captured CO two, right? You have to store it on boa…

AI assessment note: “we see this As an important interim solution to explore, and I use the word explore”

Q for a second in this context. There's, there's obviously LNG for the purpose of transcontinental energy transport. In other words, LNG that is not Powering the ship, but rather being transported from the US to Europe, for example. But as it pertains specifically to powering the ship, um, how far along are we in LNG powered vessels? And how do you think about that in the context of decarbonizing shipping?

A Sure. So, I mean, uh, LNG is being transported in LNG carriers, and increasingly these LNG carriers are being retrofitted so that they can burn the cargo that they carry. Um, and, and so that motivation is really from an economic perspective, less so from a decarbonization perspective. Uh, that said, I mean, burning LNG can reduce emissions by about 25%, so it's a good thing, provided, provided that we take care of methane slip, right? Um, so, uh, there's fugitive methane slip, um, upstream, uh, so in the refining process, in the transport process that one needs to take care of, And then, of course, when you're burning methane, um, I, I was told that it's less of a problem with the bigger vessels and the two-stroke engines. Uh, nonetheless, there's some, um, and because methane is a more warming gas than CO₂, we want to eliminate methane slip, and so if you can eliminate methane slip, the emissions reduction is approximately 25% compared to heavy fuel oil, and so that's a good thing, and it could be a transition fuel. It doesn't get us to zero. It gets us partway there.

AI assessment note: “It doesn't get us to zero. It gets us partway there.”

Q to be the emergent path in aviation is to sort of max out your biosaf as much as you can, and then transition over time to things that don't have the same kind of a Uh, input ceiling as Biosaf does. Is it the same in shipping world? And relatedly to that, like, are they the same inputs? And so you're competing with, for example, sustainable aviation fuel for feedstock?

A So, I mean, I think right now we're in the transition. So the feedstocks are the same. We're looking at, uh, whether there are opportunities to expand the feedstock library. So for example, at the Global Center for Maritime Decarbonization, we have a pilot That we're looking at crude algae oil, and so the idea is that it's a crude processing. It takes you partway there. You don't have to purify it all the way. Um, the thing with SAV is you, you need to, it needs to be really high quality, right? I mean, it needs to mimic jet A-one fuel. Uh, with shipping, you don't need that. So are there, are other opportunities to look at other feedstocks, uh, to be able to use those, uh, for, uh, Um, for marine fuel replacements. Um, so, so certainly there are folks out there who are looking at different kinds of feed stop and evaluating, uh, the option to be able to do that. And so we're going to test, for example, crude algae oil in test engines, uh, working closely with engine manufacturers, et cetera. And then provided that, um, the crude algae oil Uh, a producer can scale in volume, then we'd like to test it on vessels itself. In fact, we've got seven ship owners who signed up and said they would be interested in trialing this on commercial routes. So we're excited about this, but we're progressing slowly just in case there are any incompatibility, uh, just in case there are any uninten…

AI assessment note: “So the feedstocks are the same. We're looking at, uh, whether there are opportunities”

Q That's interesting. Is there, setting aside the Uh, more novel ideas like, like crude algae oil, um, for more like, I don't know, I guess traditional biofuel types. Is there an existing supply chain today? Are there, are there ships that are burning biofuels already today? And if so, what volume and where?

A Yeah, I mean, there are, but in small volumes, right? And so, I mean, we've done, uh, so I can tell you about our trials. So we've done four supply chain trials where we put tracers in biofuels at the production facility, and then followed the biofuels down the supply chain, and then bunkered it on board vessels, and then have it combust. This tracer provides assurance on quality, quantity, and therefore abatement The emissions abatement, um, of, of the biofuels, right? And so these supply chains, uh, some come from China, uh, others come from Malaysia. We follow them. Uh, we've bunkered in Singapore. We've bunkered in Rotterdam. We've bunkered in Vlissingen. The whole point of doing this is so to make sure that, you know, we can do this pilot as much of a commercial basis as possible, because when we step away, that these kinds of commercial, uh, Transaction can continue to happen. Um, so, so there are existing, uh, supply chains. Uh, I think the question is not whether there are existing supply chains, more the volumes, right? So the most recent supply chain that we've done is, uh, 4500 metric tons of biofuel blends that we've used. Um, so in the large scheme of things, I suppose it's not a lot, but I mean, it's, it's, it's growing. So, um, and, and just to give you additional numbers, so Singapore and Rotterdam, um, I think collectively now have, uh, bunkered a million tons …

AI assessment note: “Singapore and Rotterdam, um, I think collectively now have, uh, bunkered a million tons”

Q You've mentioned a couple of these, but are there other technical challenges that we should be thinking about with either methanol or ammonia, probably more likely with ammonia, that are yet to be fully solved to really scale up, like an industry that could be dependent on either of those fuels?

A Yes. I mean, I think energy density is a big one, right? And so, um, whether we're talking about ammonia or methanol, The volumetric energy density is significantly lower than heavy fuel oil, and so you would need approximately two and a half times, whether we're talking about ammonia or methanol, um, compared to heavy fuel oil to go the same distance. So then ship owners now are forced to think about whether they're going to have to carry more fuel at the expense of carrying cargo, or they have to bunker more frequently. So, uh, ships don't bunker at every port they stop at, Right. Um, and, but now they need to think about where bunkering needs to happen. In fact, we did a survey with BCG and the survey showed that, um, you know, um, ships actually, the bunkering patterns are, um, are very, I would call them centralized. So more than 50% of the ships on the water today, uh, have a favorite port and the favorite port is defined as bunkering at that port more than 50% of the time. Right. So they do their thing. They come back to that port for bunkering. Um, it could be because they're doing services there as well, or it could be because, uh, the fuel's cheap, whatnot. And so that model, I think, will break down and we will see more distributed bunkering because of the low volumetric density of, uh, of these future fuels. And I say that because, um, there's another data point fro…

AI assessment note: “I think energy density is a big one, right?”

Q hadn't realized that every individual operator and, and ship can, Procure their own fuel, but there are some large players in this market who presumably have a lot of market power to start to push in a particular direction here in terms of methanol or ammonia or something else. So who are the big players that sort of have the most heft and where, where are they leaning so far?

A Well, I mean, I think, um, the ones that you're seeing in the headlines would be Maersk, right? Um, so it's a large, uh, container, uh, ship, ship, shipping company, and it's, uh, uh, been, uh, building methanol dual fuel vessels, and so now it's actually going up the supply chain, uh, trying to invest in projects that actually produce methanol, so it can source its own methanol, um, But again, I mean, the amount of methanol it needs is humongous compared to what we're producing today, right? So, um, so this is a challenge that, uh, is going to take decades to solve. It's not going to be solved tomorrow. And already you're seeing, uh, MERS kind of, uh, saying that they're going to also look at alternatives because, uh, the scale with which we can access, uh, Uh, methanol. And by the way, when we say methanol, uh, I'm assuming that we're talking about the green version, right? Or the blue version, the low carbon variance of methanol.

AI assessment note: “the ones that you're seeing in the headlines would be Maersk”

Q no one winner, but in some ways there's kind of a race between methanol and ammonia, where there are, there are shippers who are buying methanol-ready ships right now, and procurement happening, and then there's others talking about ammonia. So I could be, I'd be interested in your Sort of quick overview of what are the pluses and minuses on each side of using methanol versus using ammonia in chips?

A Yeah, yeah, certainly we can, we can focus on the fuel side, but I think, you know, to understand, um, why there is this, uh, I mean, why shipping appears schizophrenic, if you want to use that word, is because of the heterogeneity of shipping, right? I mean, even with biofuels, it's, it's really to understand the complexity of the supply chain. So, So different from aviation and different from other, I would say, um, uh, industries, shipping's supply chain is very fragmented. I mean, the fuel changes hands many times before it comes, it gets to the ship owner or the ship operator, and individual ship owner and ship operator actually source their own fuel. This is very different from aviation, where the airport gets the same fuel, and so all the airplane that refuels there get the same fuel. So having that context, Um, will allow one to better understand why there are so many different kinds of fuels that we're looking at. Um, so coming back to ammonia and methanol, I think ultimately it depends on whether you think production is going to be the bottleneck or infrastructure is going to be the bottleneck. Methanol is a liquid, right? We can handle that pretty easily. So if you think infrastructure is the bottleneck, one tends to go with methanol. We can handle it There are supply chains. It's being produced at about a hundred million tons a year. Um, and there are, um, I mean, b…

AI assessment note: “whether you think production is going to be the bottleneck or infrastructure is going to be”

Q Talk to me about what fuel we use today. In global shipping and how that's changed over time?

A Well, I mean, shipping, uh, propulsion of shipping basically relies on fossil fuel, and so this is heavy fuel oil mostly. It's really the bottom, the stuff that you can't distill, uh, when you refine, uh, fossil fuels and oil, um, and that's what's used in shipping. Um, although when one think about, uh, Fossil fuels for shipping, uh, there are different grades. So there, because of, uh, the sulfur regulation, uh, that caps the sulfur emissions for shipping, uh, there are different grades of, uh, fuel oil that's being used. There's the heavy, uh, the heavy, uh, sulfur fuel oil. There's the VLSFO. So, uh, uh, low sulfur fuel oil and very low sulfur fuel oil. And then, of course, there's a marine gas oil. So that's the light distillate, right? So depending on, uh, Uh, if you, if you look at the cost alone, then of course you would use the heavy fuel oil because that's the cheapest of them all. Um, but there are other functions that, um, ship owners and operators, uh, use to determine, uh, what fuel oil they use. Um, so when they go into, uh, countries where there are stricter, uh, regulations, then they have to switch to a higher grade, uh, fuel oil, if you will, where the sulfur content is lower.

AI assessment note: “propulsion of shipping basically relies on fossil fuel, and so this is heavy fuel oil”

Q Is it true today that, um, are those different forms of fuel oil today, very low sulfur fuel oil, high fuel oil, whatever it is, are they dropping replacements for each other? Can the same ship with the same engine burn any one of them? Or, or is that not true?

A So they're dropping replacements when you think about the engine, but they, they, I mean, when you bunker them, they, They're in different tanks on, on, on board vessels, right? Right. Um, and, and then there's, of course, uh, liquefied natural gas. Um, and there, um, it's not considered a drop-in fuel, right? Um, you have a dual fuel engine that either uses heavy fuel oil or it uses liquefied natural gas. Um, so it's either or, um, it's the same engine, but it's a dual fuel engine, right? So it's been retrofitted so that you can do that. Um, there's biofuels. That's a drop in fuel. Um, that's currently being used. So there's an existing portfolio of fuels is my point. And we're moving from an existing portfolio of fuels to a different portfolio of fuels.

AI assessment note: “they're dropping replacements when you think about the engine, but”

Q Otherwise you're just burning another hydrocarbon. Um, So yeah, so I was thinking of, of Marist, because they seem to have, as you said, they're not saying like at the expense of all other things, but they certainly have placed an affirmative vote on, on scaling up ethanol. Um, are there others who've done the same on the ammonia side?

A Um, I would say, um, we're beginning to see some of that. Um, we're seeing ship owner, uh, ship owners ordering, uh, ships. Uh, so these would be the ammonia carriers, uh, Uh, that have, uh, dual fuel propulsion capability, burning their own cargo. Again, following the same route as liquefied natural gas. I mean, ammonia, one thing we didn't talk about when we spoke about ammonia is, uh, safety concerns. Ammonia is a toxic gas. Um, so I think, um, the safety, how do you think about the emergency response? Um, how do we get the ecosystem ready for using ammonia is Critically important. How do we train the crew and the operators? Those are all important. So, um, that's all sort of coming along and GCMD is playing a part in trying to do this as well through our safety studies and through scoping pilots to demonstrate that you can transfer ammonia safely. Um, so, uh, yeah, I mean, I think it's coming. Um, we see ship owners, they're ordering ammonia carriers. So about 20, I think it's been 20 ammonia carriers have been ordered thus far.

AI assessment note: “we're beginning to see some of that. Um, we're seeing ship owner, uh, ship owners ordering”

Q much, and there's a bunch of academic research that's trying to determine exactly how much warming that has caused. Uh, within the shipping industry, is that, is there a view on that? Are people saying, like, hey, maybe we should go back to high sulfur, because Because look at the impact that we're having on, on global warming by removing it, or like, what's the, yeah, what's the view there?

A I think, I think, so, so ironically, this was a conversation that I had, um, at an advisory board meeting last week, and we discussed this extensively, but I mean, look, Shaila, I think, you know, climate science is complicated. There are, uh, intended and unintended consequences. There are consequences after consequences. There are interdependencies that we don't quite understand. So, I mean, net, net, I think if you look at the sulfur regulation, it's brought a lot of good, not only to, um, to emissions, but also I would say from a pollution standpoint, right? Um, so from a health standpoint, it's brought a lot of good. So if you're using heavy sulfur fuel oil, what you need to do on your ships is to put a, a scrubber to scrub the sulfur. So that's one alternative, or you can opt to, instead of installing a scrubber, which is high on capex, You buy the low sulfur fuel oil. So, I mean, I think net net, it's been good for the world, uh, from an emission standpoint, but also, uh, from a health standpoint.

AI assessment note: “net, net, I think if you look at the sulfur regulation, it's brought a lot of good”