Why LNG as the ship fuel of the future is a massive red herring

Dr Tristan Smith from UCL Energy Institute takes issue with a feature we ran last week on France’s push to promote LNG as a ship fuel.

I read with interest the feature carried on Splash about how France – led by CMA CGM and Total – was pushing ahead with many initiatives to promote LNG as a future ship fuel. Contrary to that article’s suggestion, I’d argue this French project is actually an example of un-joined-up thinking.

The use of LNG as a marine fuel is looking like a very expensive ‘red herring’ (or hareng rouge if you prefer) that could distract much of the shipping industry in the coming years. Quite contrary to this being a victory for joined-up thinking, it will likely be a strategic disaster for the companies involved, or it will at least undermine the climate agreement of which the French are so proud.

There is one argument about exactly what environmental benefits LNG brings – yes it helps reduce air pollution, but its potentially worse than HFO in the context of GHG emissions. This is because methane is a potent greenhouse gas, and only a very small amount needs to escape to cancel out the combustion CO2 benefits. If we are generous and imagine that no methane has leaked at any point in the supply chain or combustion, then we can attribute a marginal GHG improvement to LNG. But this argument misses the point. LNG’s flaws are more fundamental – it is a fossil fuel that just like oil produces about three tonnes of CO2 for every tonne of fuel consumed.  This makes it an ‘impasse’ in a world committed to decarbonise.

Total know that, as surely do CMA CGM. So to make this decision work, they seem to have presumed that the Paris Agreement will not apply fully to the shipping industry.  Or maybe they have another plan. Their commercial agreement is for only 10 years, which may mean that they have a different plan in place for these ships after the late 2020s. But how much institutional inertia will have been built in that time which will then have to be overcome? How much public money will have been spent developing ‘dedicated supply chains’, which then need to be decommissioned and written-off? How much distraction will all this cause, starving attention and investment from the genuine sustainable solutions that the sector desperately needs – hydrogen, ammonia, bioenergy and electrification?

In two months’ time, at MEPC 72, the IMO will hopefully agree its Initial Strategy on Reduction of GHG Emissions. Its likely contents will include something that has become referred to as a ‘Level of Ambition’, which will contain a set of objectives, aka targets, specifying the rate at which shipping will reduce its CO2 (and other GHG emissions).

The range of objectives on the table include for example a Paris Agreement aligned 70-100% absolute reduction in CO2 by 2050 (proposed by, among others, France), to the relatively less ambitious but still industry transformative 50% absolute reduction by 2060, both measured against 2008 emissions. The debate, and therefore uncertainty around which objective will be chosen has made it very difficult for anyone in industry to understand and plan for what might come next.  However, three things have been agreed to by virtually all parties – that there is a ‘vision’ for full decarbonisation of shipping, that IMO’s GHG response needs to align in some way with the temperature goals of the Paris Agreement, and that policy will be required to assist shipping’s conversion to using non-fossil fuels (i.e. not LNG).

Because there has been such little debate on the substance of this issue at IMO until very recently, many countries do not feel confident that we know enough to sign up now to the Paris aligned 70-100% objective. There is fear and misunderstanding about the potential technology pathways to decarbonise, and coupled with this, the way the burden of the sector’s transition may be shared between countries. This may mean that the April 2018 agreed GHG targets/objectives are not as clear or Paris-aligned as they should be, but this would likely only be a postponement of that precision until 2023.

Fortunately, commercial strategy can be formulated even now based on very simple logic. There are two scenarios – either commitments agreed to in Paris go ahead (including at IMO) or everything collapses and spirals out of control towards 3/4/5 degree temperature rise.

It would certainly seem worth planning for both eventualities. Fortunately its easy to do for the latter, it’s the path we’re already on. To think about the former, we need to figure out what needs to be done under Paris-compliant CO2 trajectories (sometimes called science-based targets). A good rule of thumb is to be aiming for zero emissions by 2050 (especially for those with developed world clients, because the developed world is supposed to ‘lead’ the transition). An alternative is a halving of emissions by 2050 – if you are being very pessimistic about the conviction behind the politics or optimistic about the share of overall decarbonisation effort that will be allocated to shipping.

One of the features of shipping’s decarbonisation is that it will need to achieve absolute CO2 reduction in spite of projections of an increase in energy demand, largely because of projected increases in trade. Trade may not be growing as fast as it used to, but even 3% per annum growth means 2.5x trade growth from now to 2050. Against this trade growth backdrop, halving or completely reducing emissions by 2050 means something like a steady reduction to 80-100% CO2 intensity (gCO2/tnm) as an average across the global fleet.

There is lots of complicated modelling and analysis that can be done here, but it boils down to the fact we have ~30 years to get the entire merchant fleet ‘off’ fossil fuel, which unless we want an expensive programme of machinery retrofit or premature scrappage, means zero emission newbuilds from ~2030.

Many have argued that LNG is the natural precursor to biogas (biomethane), which is certainly one pathway. Maybe Total and CMA CGM are confident there will be enough bioenergy to meet all of shipping (and everyone else’s) needs, and that this bioenergy will be cheaply available as a gas and not as a liquid. But our work implies that over this timescale, ammonia, hydrogen and battery electrification all have potential to mature to be competitive with biofuel. The problem with being Paris-aligned and setting conviction behind LNG now is that only in the scenario where biogas is the long-run fuel choice, can LNG infrastructure be of significant use to shipping. This means that much of the LNG related capital expenditure that will happen in the next few years, both on ships and on shore, will likely be valuable only until the competing more longer-term solution(s) has/have become apparent. When might that be? 2030? Perhaps sooner?

It is understandable how Total, CMA CGM and France have, like many others before them and likely after too, ended up here. There are all sorts of commercial alignments that make a coherent political-industrial narrative. It is a triumph when public and private do work together, its just unfortunate in this of all instances, that the coherency with the Paris Agreement is not there.

There are ways forwards. Governments have to have stronger convictions to enact what they say at the UN, even when this might mean turning down opportunities that appear attractive when evaluated in the short-term. For shipping companies, LNG can certainly be considered, but beware of fuel suppliers promising ‘significant growth’ if this is not compatible with UN agreements. If you have evaluated and LNG really does make sense, at least make it clear that it is part of a plan to get to zero CO2, and where LNG fits in that plan – in case everyone assumes that the absence of this information means you too are betting against the Paris Agreement.