Wartsila says shipowners need to decarbonize at ‘right speed’ to sustain the business

Shipping companies should decarbonize their operations at “the right speed” to reduce the financial burden while meeting regulatory requirements, Wartsila’s marine business head, Roger Holm, told S&P Global Commodity Insights in an interview.
While some environmentalists have called for a phaseout of fossil fuels as soon as possible to address climate change, Holm, whose company is one of the largest marine technology providers, suggested shipowners would need to be prudent in making decarbonization investments for business survival.

“What we see at the moment is that if you are too slow, you might be out of business. And if you are too fast, you might [also] be out of the business,” Holm said.

The major issue now for the shipping industry is “how do you combine the decarbonization journey with the financial viability, stay in business while decarbonizing at the right speed,” he added.

Analysts have said that shipowners need to shift to low-carbon marine fuels to cut greenhouse gas emissions, but vessels capable of burning such alternatives to conventional, oil bunkers often cost at least 10% more.

Platts, part of S&P Global Commodity Insights, assessed the bunker cost for 0.5%-sulfur marine fuel oil — the prevalent bunker fuel — at $14.951/Gj in Rotterdam April 16. But low-carbon fuels could be two to five times more expensive based on industry estimates.

“If you invest too much money too early before you actually have the need… your expenditures [would be] too high,” Holm said. “You should optimize the cost to be at the right time.”

The EU is introducing the Emissions Trading System for shipping from 2024 and FuelEU Maritime rules on marine energy’s GHG intensity from 2025, with both regulations set to tighten through the coming decades for the bloc to reach climate neutrality by 2050.

Brussels’ decarbonization drive could cause the cost of conventional fuels to more than double by the end of this decade, before rising further, eventually closing the price gap between oil-based and sustainable fuels by 2035 in EU waters, according to Wartsila’s research.

“If you are too slow on investing on green development and decarbonization, you might find yourself in a situation where you have to pay more for fossil fuels than green fuels,” Holm said.

With regulations taken into consideration, the costs of low-carbon methanol, ammonia, compressed hydrogen, and marine batteries could be 60-80% of VLSFO in 2035, Wartsila has found. But the Finnish company’s forecast shows more increases of oil bunker costs than falls in green fuel expenses, suggesting higher marine fuel expenditure on average, Holm said.

“We have a bit of a chicken and egg problem in the industry today” as green fuel prices are high due to limited supply, which curbs buying interest, he said. “But [producers] are not getting enough offtake agreements, so they don’t dare to invest in [green fuel capacity].”

While pushing up overall fuel costs, environmental regulations are necessary in kickstarting a low-carbon transition as they signal more demand “from a financial perspective,” Holm added.

“The measure here now to make fossil fuels more expensive is just to make sure that you get a level playing field to push for the green development,” he said, adding that “we need to see this snowball effect to start” for sustainable fuels production to ramp up and prices to fall.

While a future marine fuel mix dominated by one type of low-carbon fuel could make it easier to make investment decision for shipping companies, many market participants suggest no amount of a single fuel is sufficient to decarbonize the whole industry.

“We are moving to a multi-fuel environment,” said Holm, sharing a similar view. “We will, for a long time, still see LNG playing a major role. We believe that methanol and ammonia will be the main green fuels coming in.”

Methanol will account for 34.3% of global low-carbon bunker demand in 2030, followed by ammonia at 14.7%, according to S&P Global analysts’ reference case.

Having been selling methanol-capable, four-stroke engines for some quarters, Wartsila began to market its first ammonia-fueled engine late last year and signed a letter of intent to sell it to Viridis Bulk Carriers.

The company is in talks with several potential customers for its first firm sale, with the first delivery probably “at some point in time early next year,” Holm said.