Maritime fuels of the future

Abstract

This study aims to develop a decision support tool which enables shipowners to select the most appropriate alternative fuel technology to comply with possible different imposed emission regulations while ensuring optimal business performance. In this context, most appropriate is defined as a fuel alternative which minimises required freight rate (RFR) while maximising overall performance on technological, environmental and other criteria. A decision support tool was devised combining a decision model based on the simple multi-attribute rating technique (SMART) with a financial model based on discounted cash-flow (DCF). Additionally, an optimisation model was implemented to optimise for minimal required freight rate through slow steaming. The decision tool provides shipowners with a quantified impact on their current business if they do not transition to alternative fuels under a 'market based measure' (MBM) regulatory scenario, as well as best-alternatives if their current fuels do not meet regulations under an 'emission cap' (EC) scenario. The decision tool is evaluated under optimistic, average and pessimistic scenarios in 2020, 2030 and 2050. Under an emission cap scenario, the results showed an overall preference for Fischer-Tropsch diesel (FTD) as the most promising alternative maritime fuel both in terms of SMART performance and required freight rate, followed by upgraded bio-oil (UBO). Nevertheless, the average difference in required freight rate of alternative fuels compared to HFO remains substantial, at 43% and 38% higher for Fischer-Tropsch diesel under a 'no regulation' scenario and 'market based measures' scenario, respectively. It is therefore evident that without regulatory intervention, heavy fuel oil is expected to retain dominance based on cost. Even under a market based measure (MBM) scenario, the average required freight rate of HFO increases only by 3.4% overall. For LNG, market-based measures lead to an average increase in RFR of 4.1%. These results suggest that in order for the maritime industry to transition towards sustainable alternative fuels, policymakers, governments, international organisations and lenders need to align their policies to collectively enable a more sustainable shipping industry - not only by enforcing stricter regulations, but also by providing the correct financial incentives.