Shifting energy demand to impact shipping
Over the next thirty years, the global transition to more renewable energy sources will change how ships are fuelled as well as the resources that they carry. A recent report by class society DNV GL presents one perspective on that shift.
Surging demand for cleaner energy will lead to sustained growth in LNG shipping beyond 2050, according to ‘Energy Transition Outlook: Maritime Forecast to 2020’ (or the Maritime ETO), a forecast published by DNV GL late last year.
The report projects that transport of other energy sources will slow after 2030, with natural gas (as LNG and liquefied petroleum gas) becoming the largest energy source as use of coal and oil declines. Gas consumption will peak globally by 2035. But gas shipping will grow beyond this because of developing demand in regions without domestic gas, as well as the discovery of new gas sources that cannot be connected to pipelines.
By contrast, global seaborne volumes of coal and oil will peak by 2030 despite projected growth in oil imports in some regions. Trade in energy commodities will decline as their use slows, starting with coal, followed crude oil and oil products.
Remi Eriksen, group president and CEO of DNV GL, said: “Our Energy Transition Outlook shows that by mid-century, the energy supply mix is likely to split equally between fossil and renewables. Advances in energy efficiency will also see the world’s demand for energy flattening after 2030. These trends will impact all players in the maritime sector.”
The crude oil fleet will decline by approximately 20% (in dwt) by 2050, with the decline beginning after 2030. The product tankers fleet is expected to remain stable. The greatest increase comes in the gas segment, where fleet tonnage rises almost 150% by 2050 because of increased trade.
GAS FUEL GROWS
DNV GL predicts that only 47% of energy for shipping will be from oil-based fuels by 2050. The share of gas in the fuel mix will rise to 32%. More than a fifth will be provided by carbon-neutral energy sources, such as biofuel and electricity.
Knut Ørbeck-Nilssen, CEO, DNV GL Maritime, said: "The fuel mix that we see beginning to shift today will be much more diverse in 2050. Oil will no longer be the overwhelming fuel of choice for trading vessels. Natural gas will step up to become the second-most widely used fuel and new low-carbon alternatives will proliferate."
Improved energy efficiency due to technical and operational improvement (including speed reduction) will see fuel use per tonne-mile reduce by 35–40% over the forecast period, with the largest reductions coming in the segments container, natural gas and other cargo.
Energy use for international shipping will increase from 10.7EJ in 2015 to 12.0EJ in 2050. Emissions of CO2 will decline by a quarter, from 800 million tonnes today to around 600 million tonnes in 2050. Despite this, shipping’s share of overall energy-related CO2 emissions is expected to grow from 2.6% to 3.5% over the forecast period as other sectors cut emissions faster. This will inevitably lead to further pressure on the sector to reduce emissions.
DNV GL forecasts that trade measured as tonne-miles will experience 2.2% annual growth over the period 2015–2030 and 0.6% per year thereafter, driven mostly by non-energy commodities. Digitalization and improved utilisation of vessels will mean that the global fleet will grow slightly more slowly than trade.
Today, four-fifths (81%) of ship traffic is located in the northern hemisphere. More than 60% of the traffic is in the Indian and Pacific Oceans, highlighting the importance of Asian trade. Seaborne trade growth to 2050 will be strongest in the Asian regions. DNV GL’s expects gas, non-coal bulk, and container trades to grow across most regions, with above-average growth rates in China, the Indian Subcontinent, South East Asia, and Sub-Saharan Africa.
Offering such a long-term perspective is always difficult, and DNV GL has admitted the limitations of its forecasts by highlighting some factors it cannot account for at this stage. These include short-term movements in rates, overcapacity, or policy. But there are two issues in particular that could alter predictions significantly.
Decarbonization will challenge the way ships are designed and operated. Several developments with potentially great impact, but involving high uncertainty, could influence technology uptake and future fleet projections. The need for emissions reductions drives energy efficiency and the development and use of alternative fuels. Fleet-growth
assumptions may be challenged by future regulations that require significant investment to ensure compliance.
Other technologies and policies could cause major shifts in transport demand. Additive manufacturing (3D printing), robotization, and automation could enable relocation of production back to developed countries, thereby shortening global value chains and potentially reducing demand for seaborne transport. There is also rising interest in, and action to establish, circular economies to reduce consumption of virgin materials and waste generation, trends that can shift and reduce transport demand.
China’s Belt and Road initiative, which aims to reshape intercontinental trade through a new network of maritime and landside links between Africa, Asia, and Europe, is another potential gamechanger for the shipping industry. It could work in both directions: rail and road transport might capture market share from shipping, but trade growth could also favour shipping companies.
Trade patterns are another factor that is hard to predict. Liberalisation over the past decades has generally benefitted international trade and maritime transport. Recent years have brought renewed focus and debate on this ideology. Protectionist trade policies would pose a potential downside risk to maritime transport. The authors’ base assumption is that prevailing trade regulations and relevant governance institutions continue unchanged so that, at least in the medium term, the risk to trade will be less than from the energy transition and manufacturing’s decreasing share in advanced economies.
Digitalisation in shipping is set to enable reduced downtime, predictive maintenance, performance forecasting, real-time risk management, and energy efficiency. Operators will generate cost savings through advanced data analytics, process digitalization, robotic
process automation, and connecting and sensing technology. In the report’s findings, DNV GL assumes that digitalisation will boost shipping efficiency and improve related energy use, increase utilization of the current fleet by improving logistics and planning, boost port development, and enhance voyage performance through better weather routing and autopilot.
Indirectly, digitalization can enable new business models and better ship operation, with
a positive impact on energy use. Autonomous ships can sail at very low speeds without incurring high crew costs, allowing greater use of batteries and other fuel
Innovative ship concepts may also emerge to create a leap forward in performance. Examples include ballast-free ships, and low- and zero-emission hybrid ships, incorporating various advances such as novel hull forms above and below the water, innovative light
materials, alternative powering (including from shore) and energy-storage modules.
Indeed, many factors could derail DNV GL’s view of the future fleet, it’s fuel requirements and trading patterns. But one thing the class society is particularly certain. At some stage in the future, the pressure on the industry to demonstrate decarbonisation will become unavoidable.
Ørbeck-Nilssen notes: “Because of the long lifespan of a maritime asset, sooner rather than later the industry will have to look to creating vessels and a global fleet that are “carbon robust”. A “carbon-robust” asset is one that can remain competitive under shifting energy, weather, demand, and regulatory scenarios. It will have a lower operating and
lifecycle cost than other vessels on the market. As part of the Maritime ETO, we have worked to define a framework that could help maritime stakeholders enhance the carbon robustness of their vessels and fleet.”
Based on DNV GL’s forecast of the most likely energy future, the world is destined to fail to achieve the Paris Agreement’s target of limiting average global warming to well below 2°C above pre-industrial levels. Success in that goal will not be achieved without a steeper reduction in the use, and therefore transport, of fossil fuels. A low-carbon future would also require more energy-efficient ship designs and operations, and carbon-neutral fuels. Future regulations and stakeholder expectations might imply significant investments to upgrade and renew ships.
DNV GL describes a three-step approach to evaluate and improve the carbon robustness of vessels and fleets. The approach stress-tests how well a ship, fleet, and company will perform under different energy transition scenarios.
With the IMO progressing towards a decarbonisation strategy, and other stakeholders taking a keen interest in shipping, it is easy to see how such a requirement to prove (and to improve) the carbon efficiency of ships could emerge rather quickly. If and when that happens, it will be just one of several far-reaching consequences exacted on the marine market by the global energy transition.
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