Pooling fuel demand can bring the scale needed to accelerate the fuel transition

The International Maritime Organisation’s (IMO) ambitious target of achieving net-zero emissions by or around 2050 has spurred significant interest in zero-emission fuels like green ammonia and methanol. While there has been progress in ordering vessels capable of running on these fuels, a key barrier remains: the substantial cost premium associated with them.

According to an insight brief from the Global Maritime Forum, demand aggregation measures could play a crucial role in overcoming this challenge. By pooling the volumes of fuel that different companies can commit to, fuel demand aggregation can give producers the scale they need while keeping commitments manageable for shipping companies.

“Closing the zero-emission fuel cost gap may not be enough by itself,” states the brief. “A mismatch between what zero-emission fuel producers need to kickstart production projects and what shipping companies are willing and able to commit to is blocking early movers from securing supply of zero-emission fuel.”

The brief also highlights the importance of third-party-led measures, such as ports, governments, and non-governmental organisations (NGOs), in unlocking zero-emission fuel supply. These actors can play a key role in facilitating pre-commercial actions, like exploring hydrogen hubs, and commercial measures, such as matchmaking and market making efforts.

Green corridors – specific shipping routes where zero-emission vessels and fuels are prioritised – are also expected to benefit from demand aggregation. These initiatives can serve as testbeds for different approaches to demand-led measures.

Aggregate fuel demand

The Global Maritime Forum encourages stakeholders to begin exploring opportunities to aggregate demand in their specific contexts. Governments are urged to include demand aggregation as a component in their policies to support commercial implementation of zero-emission shipping. This involves creating a supportive regulatory environment, providing subsidies, and investing in research, development, and demonstration programs. Governments should also consider differences between shipping segments, how demand aggregation may interact with regulations and subsidies, and opportunities to combine shipping and land-side demand when designing policy interventions.

Ports are encouraged to explore the potential to support pre-commercial action through engagement with customers and reflection on their likely position in the hydrogen economy. This can help clarify ports’ role in any commercial action. Additionally, ports can consider investing in infrastructure and facilities necessary to handle zero-emission fuels, such as bunkering stations and storage tanks.

NGOs can act as convenors on demand aggregation, facilitating discussions and supporting pre-commercial and commercial action. They can also help raise awareness about the importance of demand aggregation and advocate for policies that support its implementation. NGOs can play a valuable role in building trust and collaboration among stakeholders, which is essential for the successful implementation of demand aggregation measures.

Strategy planning

Shipping companies are advised to assess the need for participating in fuel demand aggregation efforts against their commercial strategy and transition plans. They should also consider the legal and commercial feasibility of demand-led measures and seek opportunities to engage in testing real-world feasibility, such as through green corridors. By participating in demand aggregation initiatives, shipping companies can help create a more robust market for zero-emission fuels and secure long-term supply at competitive prices.

Finance institutions, including commercial banks, investment and development banks, and philanthropic investors, can also play a vital role. Commercial banks and investors can support supply-led action by providing financing for the development of zero-emission fuel production facilities and infrastructure. Investment and development banks can explore opportunities to broaden access to zero-emission fuel through credit enhancement and/or market making for shipping. Philanthropic investors can consider supporting convening organisations and financially contributing to zero-emission buyers alliances and market making efforts.

By implementing demand aggregation measures, the shipping industry can accelerate the availability and use of zero-emission fuels, bringing us closer to a more sustainable and decarbonized future. This will require a collaborative effort from governments, ports, NGOs, shipping companies, and financial institutions.

In addition to the measures outlined in the brief, the Global Maritime Forum stressed that is also important to consider the potential impact of technological advancements on demand aggregation. As new technologies emerge, such as improved energy storage systems and more efficient fuel cells, they could influence the cost and availability of zero-emission fuels. It will be crucial to monitor these developments and adjust demand aggregation strategies accordingly.

“Fuel demand aggregation can play an important role in accelerating the availability and use of

zero-emission fuels in shipping,” said the GMF. “Multiple approaches to implementing demand aggregation are available across different actors and the pre-commercial and commercial stages.

“Given the urgency of reaching the IMO’s 2030 zero-emission fuel target, stakeholders should begin exploring opportunities to aggregate demand in their specific contexts as soon as possible. Due to their potential to play a leading role, coupled with often limited experience with zero-emission marine fuels, ports and governments in particular should act fast and intensify their engagement with demand aggregation.”

Furthermore, it is essential to address the social and environmental implications of transitioning to zero-emission fuels. This includes ensuring that the production and use of these fuels do not have negative impacts on communities, ecosystems, and biodiversity. It will be important to develop sustainable and equitable supply chains for zero-emission fuels and to implement measures to mitigate any potential negative consequences.

Source: Baltic Exchange by  Carly Fields