The majority of the shipping industry continues to express a desire and a willingness to continue the process of decarbonization. The long-term goals set out by the International Maritime Organization (IMO) in its Net Zero Framework hinge on creating a level playing field for global regulation and providing a signal to green fuel producers that demand would move toward greater predictability.
The decision to delay adoption of the NZF for at least one year creates multiple impacts on owners, managers and charterers. But for the world’s ports – those expected to support the energy transition as points of supply – the decision also creates challenges that will ripple through the sector.
The maritime energy transition was always going to be expensive and difficult for shipping and ports alike. The seismic shift from a single fuel type to multiple possible fuels, for example; LNG, methanol, ammonia and hydrogen - means progressive investment in infrastructure as supply grows and owners consolidate around a preferred fuel type.
The risk of stranded investment has long haunted first movers, with the initial LNG bunker terminals constructed only once demand was guaranteed by regional regulation.
Since then, bunker suppliers have cautiously increased investment in barges and terminal capacity to supply LNG, methanol and have designs on ammonia. This investment has tended to follow orders from large container liner operators of dual-fuel vessels, which can be supplied with conventional and alternative fuels in a flexible model.
As landlords, port authorities are shielded to some extent from the costs of investment in alternative fuels, which are made by concession holders in most cases. But as local authorities, they often participate in development projects, since the expense often requires public funding as well as private investment.
The fuel suppliers will bear the brunt of the investment and operational running costs, which may include advanced systems such as cryogenic storage and handling, with additional fire and other risk protection required.
Studies have already taken place on the controls and training, planning and emergency response that ports and terminals must put in place to manage such risks. However, the public consultation required means longer planning cycles have the potential to add delays and uncertainty to design and build schedules.
Each of the new fuels adopted by the shipping industry presents different operational risks, meaning the safety, liability and insurance implications for ports, suppliers and customers vary considerably.
LNG is more advanced in terms of handling and storage and is also non-toxic and non-explosive in the open air. However, LNG poses significant flammability risks when vaporized and requires stringent safety measures. It can be highly explosive, and the facilities required for its handling are far more costly than those required for fuel oil.
Methanol is both highly flammable and incredibly toxic if swallowed, with prolonged inhalation, or in contact with the skin: and can cause severe damage to the body and the central nervous system.
Its fire risks are well understood and can be mitigated by standard fire suppression and safety measures such as fire detection methods, alcohol-resistant foam, adequate ventilation, appropriate PPE and training on safe handling.
Methanol’s miscibility in water means that any spill is quickly dispersed, so environmental risks are low. Another factor to consider is its low energy density – less than half that of fuel oil – which means much more frequent bunkering is required.
A serious ammonia spill could be devastating, as it dissolves in water to form ammonium hydroxide, which is highly toxic to marine life. Ammonia is highly toxic to humans even at very low concentrations, while exposure to high concentrations can cause death within hours, prolonged exposure to levels above the safety threshold can lead to severe health complications and potentially death over weeks or months.
Although many decades from widespread availability as fuel, hydrogen is highly flammable with very low ignition points, making the management of a leak critical. It requires cryogenic containment far colder than LNG and requires an advanced insulation system, specialized materials and strict safety protocols.
The delay to the NZF by the IMO creates a medium-term challenge for shipping and ports. First, because without a clear mandate for production of clean fuels, owners and ports are likely to defer investment decisions.
Perhaps more importantly, it prolongs the patchwork approach of regional and national approaches to carbon reduction, most significantly the EU’s Fit for 55 program, including Fuel EU Maritime and the Emissions Trading System.
But even on a European level, there are further discrepancies. France has long embraced nuclear power as a stable low-carbon energy source, while Germany rejects this and is focusing on renewables. Belgium, too is reconsidering nuclear power in the face of energy security concerns.
Such differences have the potential to complicate and frustrate planning and development of regional fuel infrastructure and cross-border cooperation.
Outside Europe, the potential growth of local carbon taxation regimes is mirrored by differences in policy that divide between continued use of fossil fuels and investment in renewables.
The lack of clarity around global carbon regulations and thus the production of alternative fuels, is creating a barrier to readiness at the ports and terminals that will ultimately supply them.
Bunker suppliers face high conversion costs, operational risks and strategic uncertainty, against which they attempt to attract the necessary investment capital and create a sustainable footing for their business.
Unlike shipping, which is subject to regulation from the IMO, EU and regional rules: ports lack a single global authority, relying instead on national rules and industry associations such as the International Association of Ports and Harbors (IAPH) for guidance.
The sheer scale and complexity of the maritime energy transition creates a clear need for international alignment across shipping, ports, local and regional/national authorities to accelerate infrastructure development and ensure a safe, sustainable transition for the entire maritime supply chain.
Willis Marine continues to work closely with the industry to help understand and manage emerging risks that impact the ports and terminals sector.
