Carbon neutral shipping – it all comes down to green hydrogen, and lots of it
With decarbonisation much in the public eye, shipping is currently and perhaps belatedly trying to find the best pathway to carbon neutral fuels. Shipping greenhouse gas (GHG) emissions as a proportion of global GHG anthropogenic emissions increased from 2.76 percent in 2012 to 2.89 percent in 2018, according to the Fourth IMO GHG Study 2020. To put this into proportion, if shipping were a country it would rank as the sixth largest GHG emitter between Japan in fifth place and Germany, according to the World Economic Forum in 2018. As an industry, it should therefore be giving GHG emissions as much attention as given to it by these two countries. A feature of ships is their relative longevity. A ship ordered today will be delivered two to three years later and then be operating for twenty to thirty years – potentially past the generally accepted deadline of 2050 for achieving carbon neutrality. There is therefore urgency in deciding on the best pathway to carbon neutrality as retrofitting ships can be exorbitantly costly or infeasible.
Russian oil exports: mapping out the future
With talk regarding a potential ban on Russian energy imports reignited in the EU, after the recent developments, it’s worth taking a look on Russia’s crude oil export destinations. In a recent report, shipbroker noted that “2021 was overall another negative year for global crude oil trade. Total loadings in the 12 months of 2021 were down -2.3 percent y-o-y to 1,989 million tonnes, according to vessels tracking data from Refinitiv. This followed a -6.1 percent y-o-y decline in global shipments in 2020, a -1.2 percent y-o-y decline in 2019 and a -0.6 percent y-o-y decline in 2018. There has been something of a rebound in Jan-Feb 2022, but it just reflects the depth of the contraction seen at this time last year, at the peak of the Covid lockdowns”. According to the shipbroker, “in Jan-Feb 2022, global crude loading reached 345.4 mln tonnes, +10.5 percent yo-y from 312.6 mln tonnes in Jan-Feb 2021, but still well below the 356.7 mln tonnes loaded in Jan-Feb 2020. Russia is the second largest seaborne exporter of crude oil in the world after Saudi Arabia, accounting for 10.7 percent of global shipments in 2021. In the 12 months of 2019, Russian seaborne crude oil exports reached a peak of 225.1 mln tonnes (excluding domestic cabotage). In 2020, however, limited global demand due to the pandemic affected shipments. In the 12 months of 2020, Russia managed to ship just 195.9 mln tonnes of crude oil (excluding domestic cabotage), down -15.1 percent year-on-year.
Dry bulk market: 2,500 wheat cargoes disrupted
The Dry bulk market is in transition mode, after the disruption caused in the Russian and Ukrainian wheat exports. In its latest weekly report, shipbroker said that “the Russian invasion of Ukraine has particularly strong implications for the seaborne grains trade, with a potentially significant impact on both dry bulk shipping and most importantly on global food security. Russia is the world’s single largest exporter of wheat, accounting for about 20 percent of global wheat trade in the 2020/21 season. Ukraine is also one of the top exporters of wheat, accounting for about 9 percent of global wheat trade. The conflict in the Black Sea has disrupted the flow of grains from the region. According to shipbroker, “Ukraine has suspended port operations for commercial activities since February 24. Russian grain shipments from the Black Sea are continuing, but are affected by exceptionally high insurance premiums for vessels. In addition, the sanctions that have been applied make commercial transactions challenging. As a result, grain prices have soared for all major exporters. International wheat price indices are currently up by about 70 percent compared to a year ago. In January-December 2021, the Russian Federation exported about 31 mln tonnes of seaborne wheat, based on Refinitiv vessel tracking data.
Global tanker fleet struggles to break even
A generational energy crisis has created the most challenging environment ever in which shipowners must make decisions about investing in tankers to transport energy commodities. The global pandemic, closely followed by Russia’s invasion of Ukraine, is reshaping supply and demand fundamentals for oil and gas against a backdrop of record-breaking prices and volatility. In China, a zero-Covid policy adds to global logistics logjams, stoking inflation that has curbed a post-pandemic economic recovery. The fleet of some 8700 crude and product tankers (over 10,000 dwt) is caught between a rock and a hard place: the geopolitical agendas of national oil and gas producers and regulators’ decarbonisation targets for a zero-emissions shipping pathway that more rapidly transitions to greener marine fuels. None of this is positive for rates and earnings. One New York investment bank covering the sector described tanker rates as “putrid” in February and forecast that seven of the eight listed tanker companies it covered would post losses in 2022.
Tankers: European oil trade routes are being redrawn
The Tanker market is in ever shifting waters, as the existing conditions are redrawing crude oil trade routes. North Sea oil production could return into play, while Urals exports are expected to move to the East. In its latest weekly report, shipbroker said that “the combination of high oil prices and the need to find alternatives to Russian crude has led to renewed interest in North Sea oil from politicians and industry alike. Previously, many had written off the North Sea’s future as a major producing region given declining UK output due to rising costs, decarbonisation pressure and low oil prices during the pandemic. However, recent events may have thrown the basin a potential lifeline.