This is Dana Perkins and you're listening to Switched on the B andF podcast. Seaborn freight is a critical part of the global economy and supply chains are inescapable. The shirt you bought, or perhaps the phone or the toy, all of them probably shipped to you at some point, if not in the end state that you bought it in, perhaps as the components that were put together. So let's use an electric vehicle as an example. Even with more onshoring and near shoring of manufacturing of batteries, the raw materials the nickel, cobalt, and lithium that are required to make the battery are sourced from all over the world and were sent to the manufacture on you guessed it. Ships with oil based bunker fuels powering the vast majority of the global shipping fleets. The emissions are significant. Consumption of marine fuels accounted for over five percent of global oil demand and two point five percent of global CO two emissions in twenty twenty two. Shipping remains one of the hardest to abate sectors faced with economic and regulatory challenges. Now, if we look at shipbuilders order books and the new vessels that are coming online. We're starting to see ships that are powered by cleaner fuels such as methanol, biofuels, and liquefied natural gas. On today's show, we're going to talk about the BNAF twenty twenty four Marine Fuel Outlook with Mohit Vallamala, a senior associate from BNF's oil team. We'll dive deep into the different marine fuels that could shape the future of the maritime industry, which has the potential to include things like ammonia. We're going to get into the decarbonization target set by the International Maritime Organization and talk about what it might take for these targets to become a reality. BNAF subscribers are going to be able to access this report, twenty twenty four Marine Fuel Outlook Methanol set sail at BNAF dot com or at BNFO on the Bloomberg terminal. Subscribe to this show for updates when we publish future episodes, and give us a review to share us with others. But right now, let's talk to Mohit about shipping fuels. Mohit, thank you very much for joining us on the show today.

This is Dana Perkins and you're listening to Switched on the B andF podcast. Seaborn freight is a critical part of the global economy and supply chains are inescapable. The shirt you bought, or perhaps the phone or the toy, all of them probably shipped to you at some point, if not in the end state that you bought it in, perhaps as the components that were put together. So let's use an electric vehicle as an example. Even with more onshoring and near shoring of manufacturing of batteries, the raw materials the nickel, cobalt, and lithium that are required to make the battery are sourced from all over the world and were sent to the manufacture on you guessed it. Ships with oil based bunker fuels powering the vast majority of the global shipping fleets. The emissions are significant. Consumption of marine fuels accounted for over five percent of global oil demand and two point five percent of global CO two emissions in twenty twenty two. Shipping remains one of the hardest to abate sectors faced with economic and regulatory challenges. Now, if we look at shipbuilders order books and the new vessels that are coming online. We're starting to see ships that are powered by cleaner fuels such as methanol, biofuels, and liquefied natural gas. On today's show, we're going to talk about the BNAF twenty twenty four Marine Fuel Outlook with Mohit Vallamala, a senior associate from BNF's oil team. We'll dive deep into the different marine fuels that could shape the future of the maritime industry, which has the potential to include things like ammonia. We're going to get into the decarbonization target set by the International Maritime Organization and talk about what it might take for these targets to become a reality. BNAF subscribers are going to be able to access this report, twenty twenty four Marine Fuel Outlook Methanol set sail at BNAF dot com or at BNFO on the Bloomberg terminal. Subscribe to this show for updates when we publish future episodes, and give us a review to share us with others. But right now, let's talk to Mohit about shipping fuels. Mohit, thank you very much for joining us on the show today.

Thank you, Denna. It's a pleasure to join here.

Thank you, Denna. It's a pleasure to join here.

We're here to talk about shipping and the related emissions, something that you think about a lot, and let's start with talking about pollution. I mean, really, how polluting is the global shipping fleet which we use to get so many items around the world, you know, integral part to not just the consumer goods that we have, but actually to the transition. How much pollution is actually coming from this part of the economy.

We're here to talk about shipping and the related emissions, something that you think about a lot, and let's start with talking about pollution. I mean, really, how polluting is the global shipping fleet which we use to get so many items around the world, you know, integral part to not just the consumer goods that we have, but actually to the transition. How much pollution is actually coming from this part of the economy.

Yeah, I think when we look at pollution, it's mostly from the fuel that powers this ship. And right now most of it is predominantly oil. So it's five percent of the global oil demand and that translates around two point five percent of global carbon dix have emissions.

Yeah, I think when we look at pollution, it's mostly from the fuel that powers this ship. And right now most of it is predominantly oil. So it's five percent of the global oil demand and that translates around two point five percent of global carbon dix have emissions.

And is this something that's going to be increasing? And the question I'm asking really is what's the growth forecast in terms of shipping.

And is this something that's going to be increasing? And the question I'm asking really is what's the growth forecast in terms of shipping.

Yeah, I think it's in the very short term for the past one hundred years. Anyway. Now it's increasing a lot because of all the inefficiencies that come from Russia's vision of Ukraine. There's like a lot of trade that's being rerouted and now recent attacks in Red Sea, all the ships are going around Africa instead of using the sewiss Canar route. But like over time, the trade itself, we expect a growth of on like twenty percent between now and twenty fifty. But when it comes to like emissions itself, there are like a lot of efficiency increases both from like whether it's a new shape, new engine, or new fuel and the various things, and like a lot of technology side of things. So while the trade increase, but the fuel consumption and the related emissions historically it's been like more and less the same correlated with the growth in seabond trade itself, but we don't see that happening forward from now.

Yeah, I think it's in the very short term for the past one hundred years. Anyway. Now it's increasing a lot because of all the inefficiencies that come from Russia's vision of Ukraine. There's like a lot of trade that's being rerouted and now recent attacks in Red Sea, all the ships are going around Africa instead of using the sewiss Canar route. But like over time, the trade itself, we expect a growth of on like twenty percent between now and twenty fifty. But when it comes to like emissions itself, there are like a lot of efficiency increases both from like whether it's a new shape, new engine, or new fuel and the various things, and like a lot of technology side of things. So while the trade increase, but the fuel consumption and the related emissions historically it's been like more and less the same correlated with the growth in seabond trade itself, but we don't see that happening forward from now.

So better ships, better engines, better fuels can lead us to potentially not growing emissions as this industry continues to grow, even potentially maybe taking a step back. So then let's talk about the fuels. What is the current fuel mix and what do you need to move a ship forward? Anybody who's listening, who's in the commodity space is probably sitting here going, But I mean for those who are not, what actually what are the fuels in ships?

So better ships, better engines, better fuels can lead us to potentially not growing emissions as this industry continues to grow, even potentially maybe taking a step back. So then let's talk about the fuels. What is the current fuel mix and what do you need to move a ship forward? Anybody who's listening, who's in the commodity space is probably sitting here going, But I mean for those who are not, what actually what are the fuels in ships?

Yeah? I think I would just put it like on a high level, it's oil products. But for the oil markets, it's mostly like fuel oil that's there. And then there's also a mix of diesel that's called marine gas oil, that's the diesel equivalant fuel that's being used. So it also depends on certain things. Like back in twenty twenty, there was this big regulation shift in terms of what fuel you can burn in ships internationally, and that was a change from like three point five sulfur fuel oil to point by sulfur maximum fue oil and then like the whole industry mostly moved from that high sulfur fuel oil to low surfur fue oil. But then there are also something called as ec emission control areas where the sulfur emission is much more stricter, so you would have like something with a maximum cap of point one sulfur. So you see more use of marine gas oil that's the diesel equivalent, and also elng G. But LNG is predominantly used in just LNG tankers as of now, but that's changing a lot. Actually, if you look at all the new vessels that are in order that are being that has a commercial agreement to build maybe like over two years, so those ones, when we check that, we see a lot of LNG powered vessels and that's around like thirty percent of the total order book right now in terms of what's on order, but the dominant fuel still remains to be oil. So that's something that can run on fuel oil and marine gas oil for instance, and that's around fifty eight percent of the total autobook. But what's very interesting and very optimistic is also looking at how the new alternative fuels which are much cleaner. While these fuels are mostly like methanol or ammonia, but like in the order book, we just see methanol and that's not like ten percent of the total autobook.

Yeah? I think I would just put it like on a high level, it's oil products. But for the oil markets, it's mostly like fuel oil that's there. And then there's also a mix of diesel that's called marine gas oil, that's the diesel equivalant fuel that's being used. So it also depends on certain things. Like back in twenty twenty, there was this big regulation shift in terms of what fuel you can burn in ships internationally, and that was a change from like three point five sulfur fuel oil to point by sulfur maximum fue oil and then like the whole industry mostly moved from that high sulfur fuel oil to low surfur fue oil. But then there are also something called as ec emission control areas where the sulfur emission is much more stricter, so you would have like something with a maximum cap of point one sulfur. So you see more use of marine gas oil that's the diesel equivalent, and also elng G. But LNG is predominantly used in just LNG tankers as of now, but that's changing a lot. Actually, if you look at all the new vessels that are in order that are being that has a commercial agreement to build maybe like over two years, so those ones, when we check that, we see a lot of LNG powered vessels and that's around like thirty percent of the total order book right now in terms of what's on order, but the dominant fuel still remains to be oil. So that's something that can run on fuel oil and marine gas oil for instance, and that's around fifty eight percent of the total autobook. But what's very interesting and very optimistic is also looking at how the new alternative fuels which are much cleaner. While these fuels are mostly like methanol or ammonia, but like in the order book, we just see methanol and that's not like ten percent of the total autobook.

So when you talk about LNG tankers, we're actually talking about ships that are transporting LERNG but then also using the liquefied natural gas as one of the fuels that they're using. And I want to know why LNG is not used more widely in other ships.

So when you talk about LNG tankers, we're actually talking about ships that are transporting LERNG but then also using the liquefied natural gas as one of the fuels that they're using. And I want to know why LNG is not used more widely in other ships.

Just a bit of context on that. So most of these ships are like dual fuel. I mentioned previously about various other fuels like methanol in the order book, and also most of them are dual fuel as well. So because it's a combustion engine, they can also run on oil based fuels. And historic like energie started as a very niche industry and I would even club LPG tankers in that the tankers that carry liquified petroleum gas, and that's basically your propane and buttane that's used in cooking and also in petrochemicals. LNG is basically methane. And then if you want to transport inland, like you just use pipelines, but like if you want to transport for a far distance, you can't use an oil tanker for this because it has to withstand that high pressure. And then because of that high pressure, there's also something that's called a boil off, So that's basically the allergy that gets the gassified and comes out, and they use some of that as a fuel in allergy tankers as well. And one of the reasons why ellernge is not used elsewhere it's historically being in a very small market and now obviously it's very big, and even in terms of like growth areas as where we see a lot of growth both for LNG use demand and also energy shippings, and also you have to think about like port infrastructure. So it was initially meant just for like llergy tankers, but obviously now we're seeing a lot of change in that and what's interesting is when you look at LNG use as a shipping fuel. Historically it's been only in energy tankers, but now we're seeing let's.

Just a bit of context on that. So most of these ships are like dual fuel. I mentioned previously about various other fuels like methanol in the order book, and also most of them are dual fuel as well. So because it's a combustion engine, they can also run on oil based fuels. And historic like energie started as a very niche industry and I would even club LPG tankers in that the tankers that carry liquified petroleum gas, and that's basically your propane and buttane that's used in cooking and also in petrochemicals. LNG is basically methane. And then if you want to transport inland, like you just use pipelines, but like if you want to transport for a far distance, you can't use an oil tanker for this because it has to withstand that high pressure. And then because of that high pressure, there's also something that's called a boil off, So that's basically the allergy that gets the gassified and comes out, and they use some of that as a fuel in allergy tankers as well. And one of the reasons why ellernge is not used elsewhere it's historically being in a very small market and now obviously it's very big, and even in terms of like growth areas as where we see a lot of growth both for LNG use demand and also energy shippings, and also you have to think about like port infrastructure. So it was initially meant just for like llergy tankers, but obviously now we're seeing a lot of change in that and what's interesting is when you look at LNG use as a shipping fuel. Historically it's been only in energy tankers, but now we're seeing let's.

Say a bulk carrier.

Say a bulk carrier.

Bulk carriers basically it's a segment that carries all try goods.

Bulk carriers basically it's a segment that carries all try goods.

So if it's your.

So if it's your.

Coal, iron ore, all the metals, and even in the grain. So these are a majority component of that. So LERG is used as a bunker fuel is definitely expanding at more and more ship owners they're ordering these lergy vessels.

Coal, iron ore, all the metals, and even in the grain. So these are a majority component of that. So LERG is used as a bunker fuel is definitely expanding at more and more ship owners they're ordering these lergy vessels.

So you actually need a different ship and a different engine in order to be able to make that work. But then how about what we would consider to be more drop in fuels? So with then bile fuels and then ammonia and methanol, how do those fit into the existing infrastructure? And you start with whatever your favorite one is.

So you actually need a different ship and a different engine in order to be able to make that work. But then how about what we would consider to be more drop in fuels? So with then bile fuels and then ammonia and methanol, how do those fit into the existing infrastructure? And you start with whatever your favorite one is.

Because you mentioned drop in fuel, I would consider buy fuel as a drop in fuel. When we talk about biofuel, you're just like blending it with the fossil fuel. Like let's say, if you're talking about fuel oil or even gas oil, that's the easily equivalent, So you would just.

Because you mentioned drop in fuel, I would consider buy fuel as a drop in fuel. When we talk about biofuel, you're just like blending it with the fossil fuel. Like let's say, if you're talking about fuel oil or even gas oil, that's the easily equivalent, So you would just.

Like blend a part of it.

Like blend a part of it.

And I think in Rotterdam, one of the biggest part in Europe, so that's where you use a thirty percent blend. And lately, over the past few years we are seeing a pickup in sales of what we call it bio blended fuel oil. And that's one aspect, and you can also have like various blends, but in terms of scale, most of the current uptake is in Rotterdam and it's very promising. A Q four of twenty twenty three, so twenty five percent of the loss of for fueil says was bio blended, but I guess the actual biofuel volumes would be much lower because if it's a thirty percent blend or something, then it will be an eight percent thing. So if we are seeing le's peak up right now today in Europe, musty and also concentrated in all the key hubs. So that is something that we'll call it drop in fuel because you can use the existing vessels, you can use existing infrastructure, you just use it and your I guess average intensity carbon intensity would be lower.

And I think in Rotterdam, one of the biggest part in Europe, so that's where you use a thirty percent blend. And lately, over the past few years we are seeing a pickup in sales of what we call it bio blended fuel oil. And that's one aspect, and you can also have like various blends, but in terms of scale, most of the current uptake is in Rotterdam and it's very promising. A Q four of twenty twenty three, so twenty five percent of the loss of for fueil says was bio blended, but I guess the actual biofuel volumes would be much lower because if it's a thirty percent blend or something, then it will be an eight percent thing. So if we are seeing le's peak up right now today in Europe, musty and also concentrated in all the key hubs. So that is something that we'll call it drop in fuel because you can use the existing vessels, you can use existing infrastructure, you just use it and your I guess average intensity carbon intensity would be lower.

So it's a part way solution for us right now.

So it's a part way solution for us right now.

Yeah.

Yeah.

Yeah, and it's also I think what's really important able like these shipping fuels as well it's not stand alone where it's shipping is the only sector. They kind of interact with other sectors as well. Like we spoke about biofuel, biofuels is used. You know, you can put sustainable aviation fuel in that, you can have the road biofuels, so they interact with all the other sectors. Methanol and ammonia is much more complicated, and like I've been having a lot of conversations at ending conferences, no one is really satisfied with methanol and ammonia itself. One way to look at is where is the money flowing, so that shows a sign of confidence, and most of it is going for methanol, and that's the initial momentum is with methanol. But then if you want to talk about what happened until twenty fifty, everyone's like, oh, maybe not just methanol because they are like other concerns with methanol. They're talking about like ammonia, But ammonia has its own issues with how do we handle ammonia. It's toxic, there might be in it's a lot of crew training, so it's bit complicated. But that that's not even like accounting the new engines that you have to make to run these fuels because they've not been used before. And then even the concept of having the whole end to end value chain, the bunker infrastructure, it's not easy.

Yeah, and it's also I think what's really important able like these shipping fuels as well it's not stand alone where it's shipping is the only sector. They kind of interact with other sectors as well. Like we spoke about biofuel, biofuels is used. You know, you can put sustainable aviation fuel in that, you can have the road biofuels, so they interact with all the other sectors. Methanol and ammonia is much more complicated, and like I've been having a lot of conversations at ending conferences, no one is really satisfied with methanol and ammonia itself. One way to look at is where is the money flowing, so that shows a sign of confidence, and most of it is going for methanol, and that's the initial momentum is with methanol. But then if you want to talk about what happened until twenty fifty, everyone's like, oh, maybe not just methanol because they are like other concerns with methanol. They're talking about like ammonia, But ammonia has its own issues with how do we handle ammonia. It's toxic, there might be in it's a lot of crew training, so it's bit complicated. But that that's not even like accounting the new engines that you have to make to run these fuels because they've not been used before. And then even the concept of having the whole end to end value chain, the bunker infrastructure, it's not easy.

So moving away from the drop in fuels and then to what are essentially coming from hydrogen, where there's a lot of attention on at the moment, tell us how to think about ammonia and methanol and really just kind of well, what the future of this shipping fleet could potentially look like.

So moving away from the drop in fuels and then to what are essentially coming from hydrogen, where there's a lot of attention on at the moment, tell us how to think about ammonia and methanol and really just kind of well, what the future of this shipping fleet could potentially look like.

Yeah, I think like hydrogen is definitely important for both ammonia and methanol as well. Like, yeah, so both of them have like a hydrogen atominate, So it's clearly like a hydrogen question. So the cost of producing like greene hydrogen is also important. That kind of like flows into the prices into the cost of producing creen methanol or creane ammonia itself. So one of the things that most shipowners at least say is they don't want to bet on one fuel because what happens is as a shipowner, you build a ship for someone else to charter, and then if you have a fuel, and if you're committed to one fuel, and then there's shortage of the fuel in the port that you want, So that kind of complicates the whole equation. So everyone's like, Okay, we want to try our different fuels, and then there's not clear evidence. There are no major like ammonia ships running right now, so it's very hard for them to make business decisions on fuel that's not being used.

Yeah, I think like hydrogen is definitely important for both ammonia and methanol as well. Like, yeah, so both of them have like a hydrogen atominate, So it's clearly like a hydrogen question. So the cost of producing like greene hydrogen is also important. That kind of like flows into the prices into the cost of producing creen methanol or creane ammonia itself. So one of the things that most shipowners at least say is they don't want to bet on one fuel because what happens is as a shipowner, you build a ship for someone else to charter, and then if you have a fuel, and if you're committed to one fuel, and then there's shortage of the fuel in the port that you want, So that kind of complicates the whole equation. So everyone's like, Okay, we want to try our different fuels, and then there's not clear evidence. There are no major like ammonia ships running right now, so it's very hard for them to make business decisions on fuel that's not being used.

To run and power these ships.

To run and power these ships.

So that's something that causing headaches for these ship onwners. While we've seen methanol ships in the auto book, most of this is being placed by a particular class of the shipping so that's container ships. I think these container ships are I would say in a well of position where the market itself is consolidated, where three to five companies control like majority of the market share. So there's a consolidation there in terms of companies. Next, when you look at what they carry, these are all like finished products and they have higher margins for it. So if you look at who their clients are, it's probably like Amazon, I hear the other companies and they have their own needs like oh, we want to clean up our valid chain. So in a way, there's pressure on shipping companies to provide carbon neutral shipping to retain their clients itself, and most of them are like based in Europe and they have shareholder pressure, they have exposure to EUTS and all the emission schemes that are coming up in Europe itself, So that's why they're like relatively well off. And you hardly see any orders from the other major vessel categories like the bulk carriers or oil tankers like one, it's a cost issue as well, but also especially for oil tankers, this whole thing is to move away, to decarbonize, to move away from oil, that's the core commodity you are building a ship to transport, and that makes them very nervous.

So that's something that causing headaches for these ship onwners. While we've seen methanol ships in the auto book, most of this is being placed by a particular class of the shipping so that's container ships. I think these container ships are I would say in a well of position where the market itself is consolidated, where three to five companies control like majority of the market share. So there's a consolidation there in terms of companies. Next, when you look at what they carry, these are all like finished products and they have higher margins for it. So if you look at who their clients are, it's probably like Amazon, I hear the other companies and they have their own needs like oh, we want to clean up our valid chain. So in a way, there's pressure on shipping companies to provide carbon neutral shipping to retain their clients itself, and most of them are like based in Europe and they have shareholder pressure, they have exposure to EUTS and all the emission schemes that are coming up in Europe itself, So that's why they're like relatively well off. And you hardly see any orders from the other major vessel categories like the bulk carriers or oil tankers like one, it's a cost issue as well, but also especially for oil tankers, this whole thing is to move away, to decarbonize, to move away from oil, that's the core commodity you are building a ship to transport, and that makes them very nervous.

So, as you said, the goal is ultimately to decarbonize. So let's talk about some of the targets that are out there, and you know, really who is trying to reach net zero versus just reducing emissions, because the maritime industry is one of the hard to abate spaces where there's a degree of innovation that we're going to need in order to be able to reach a net zero future.

So, as you said, the goal is ultimately to decarbonize. So let's talk about some of the targets that are out there, and you know, really who is trying to reach net zero versus just reducing emissions, because the maritime industry is one of the hard to abate spaces where there's a degree of innovation that we're going to need in order to be able to reach a net zero future.

So I guess if you look at like who's setting the targets, it's the International Maritime Organization also known as IMO. So last year they updated their greenhouse gas strategy, finally targeting net zero by twenty fifty. Before even the target was just fifty percent reduction in twenty fifty compared to like the two thousand and eight baseline, So all the conversations that we had last year was or even like IMO is not targeting net zero, so what but like at least now at least the targets are set in place, so that's one thing. But they also have a target for twenty thirty that's a twenty percent reduction, but that's something that I would say, there's consensus that the shipping industry is not going to meet those targets. So that's a missed opportunity because all of the change, it's mostly post twenty thirties, is highly much change, and even like these new fuels, we won't see an ammonia vessel up until probably twenty twenties. So in terms of targets, obviously the main one is the IOMO because that's such the targets elsewhere, but I would say the European Union have like two schemes they included shipping in EU ets this year. In terms of impact itself, right now ideally it should be like talk of the town, but it's not that significant because of all the near term changes in the Red Sea and all the attacks.

So I guess if you look at like who's setting the targets, it's the International Maritime Organization also known as IMO. So last year they updated their greenhouse gas strategy, finally targeting net zero by twenty fifty. Before even the target was just fifty percent reduction in twenty fifty compared to like the two thousand and eight baseline, So all the conversations that we had last year was or even like IMO is not targeting net zero, so what but like at least now at least the targets are set in place, so that's one thing. But they also have a target for twenty thirty that's a twenty percent reduction, but that's something that I would say, there's consensus that the shipping industry is not going to meet those targets. So that's a missed opportunity because all of the change, it's mostly post twenty thirties, is highly much change, and even like these new fuels, we won't see an ammonia vessel up until probably twenty twenties. So in terms of targets, obviously the main one is the IOMO because that's such the targets elsewhere, but I would say the European Union have like two schemes they included shipping in EU ets this year. In terms of impact itself, right now ideally it should be like talk of the town, but it's not that significant because of all the near term changes in the Red Sea and all the attacks.

One of the things that you're referring to is that, first of all, that's this EU emissions trading system, which is essentially a policy intervention, and then there's the International Maritime Organization, which is a specialized group that's a part of the United Nations. So I'm seeing that these targets are really largely coming. We're talking about policy right now. Are there also targets coming from some of the companies themselves? Who are the ships that are going around the world. Are the shipping organizations themselves, Are they ambitious about driving down emissions?

One of the things that you're referring to is that, first of all, that's this EU emissions trading system, which is essentially a policy intervention, and then there's the International Maritime Organization, which is a specialized group that's a part of the United Nations. So I'm seeing that these targets are really largely coming. We're talking about policy right now. Are there also targets coming from some of the companies themselves? Who are the ships that are going around the world. Are the shipping organizations themselves, Are they ambitious about driving down emissions?

Yeah, definitely. I think most of them are like consolidated in the contingent containership vessel class, so we're seeing a lot of them have their own net zero targets, as I've mentioned, for like various reasons. But then there's also a few companies outside, particularly like Costco that's the Chinese shipping company, have their target, and shipping companies in Japan as well come up. But there's overall, I would say the trend is very high in container ship companies, whereas in bulk carriers and oil tankers, I think there are very few targets from that set. And while that is welcome, you need these companies to set up targets so that there's a willingness to pay the green premium for the fuels, because today probably the green fuels like green methanol like I'm on, at least four to five times more expensive. Obviously, like all the carbon price from EUTS would not bridge that gap. So you just need willingness either from the shipping companies to go ahead and do it, or the clients of the shipping companies requesting, oh, yes, we need carbon neutral shipping for this, So someone has to pray the premium, and like you need the willingness to pay, and this comes from setting targets themselves.

Yeah, definitely. I think most of them are like consolidated in the contingent containership vessel class, so we're seeing a lot of them have their own net zero targets, as I've mentioned, for like various reasons. But then there's also a few companies outside, particularly like Costco that's the Chinese shipping company, have their target, and shipping companies in Japan as well come up. But there's overall, I would say the trend is very high in container ship companies, whereas in bulk carriers and oil tankers, I think there are very few targets from that set. And while that is welcome, you need these companies to set up targets so that there's a willingness to pay the green premium for the fuels, because today probably the green fuels like green methanol like I'm on, at least four to five times more expensive. Obviously, like all the carbon price from EUTS would not bridge that gap. So you just need willingness either from the shipping companies to go ahead and do it, or the clients of the shipping companies requesting, oh, yes, we need carbon neutral shipping for this, So someone has to pray the premium, and like you need the willingness to pay, and this comes from setting targets themselves.

So that's on the companies themselves and then the consumer. And then you know, just going back one more time to the policy end, because I switched you to companies before you had an opportunity to talk about the third intervention, which is also from the European Union, which is fuel EU. Can you talk a little bit about the targets there.

So that's on the companies themselves and then the consumer. And then you know, just going back one more time to the policy end, because I switched you to companies before you had an opportunity to talk about the third intervention, which is also from the European Union, which is fuel EU. Can you talk a little bit about the targets there.

So the EU has two schemes of the EETs, which I mentioned before. So you pay a carbon price based on what you emit, but the EU the fuel you married time is it sets the targets on the average creenouse gas intensity and those targets get stricter over time. So right now I think like fuels like LNG is still compliant, but you know, they gets like stricter over time, and then maybe on late twenty thirties, that's where we see energ not being compliant. Fuels like fuel oil and all of them won't be compliant starting from next year.

So the EU has two schemes of the EETs, which I mentioned before. So you pay a carbon price based on what you emit, but the EU the fuel you married time is it sets the targets on the average creenouse gas intensity and those targets get stricter over time. So right now I think like fuels like LNG is still compliant, but you know, they gets like stricter over time, and then maybe on late twenty thirties, that's where we see energ not being compliant. Fuels like fuel oil and all of them won't be compliant starting from next year.

So they won't be able to be used in Europe.

So they won't be able to be used in Europe.

Oh no, so you can use them, but it's more like, so you pay the differential. So let's say if you exceed the target by like five percent, then you pay how much of a fuel you consume, and then you've paid the five percent in access, so you could still use them, but it's just like you start paying for that.

Oh no, so you can use them, but it's more like, so you pay the differential. So let's say if you exceed the target by like five percent, then you pay how much of a fuel you consume, and then you've paid the five percent in access, so you could still use them, but it's just like you start paying for that.

And does that price fluctuate the same way that the carbon price fluctuates the trading scheme or is it different?

And does that price fluctuate the same way that the carbon price fluctuates the trading scheme or is it different?

So it doesn't, So there's a penalty that's fixed by the EU that doesn't like fluctuate that much. But what happens is there's something that's called a pooling mechanism, So that's kind of I wouldn't call it necessarily a loophole, but you could probably take advantage of that where if you have one vessel that has if you use like an ammonia like methanol vessel, then you can.

So it doesn't, So there's a penalty that's fixed by the EU that doesn't like fluctuate that much. But what happens is there's something that's called a pooling mechanism, So that's kind of I wouldn't call it necessarily a loophole, but you could probably take advantage of that where if you have one vessel that has if you use like an ammonia like methanol vessel, then you can.

Pull together as a flea.

Pull together as a flea.

You can have one methanol and then like two three oil based fuels, and then you can pull them together and then have an average fleet wide intensity and then comply with the target as well. So that kind of leaves the door open for more and more I guess like consolidations, at least the fleet operation side of things. They could consolidate them to meet the targets. But I would still say, yeah, while Europe is setting up these targets, this is very important. But also the emissions that are under Europe is still fourteen percent of the global shipping emissions.

You can have one methanol and then like two three oil based fuels, and then you can pull them together and then have an average fleet wide intensity and then comply with the target as well. So that kind of leaves the door open for more and more I guess like consolidations, at least the fleet operation side of things. They could consolidate them to meet the targets. But I would still say, yeah, while Europe is setting up these targets, this is very important. But also the emissions that are under Europe is still fourteen percent of the global shipping emissions.

So Europe has aggressive targets, but they actually are not the vast majority of these shipping emissions, and so other parts of the world need to start kind of either adopting these or other other ways in order to I guess, get these shipping companies to actually look at adopting these newer fuels and newer technologies. And one of the questions I have as a follow on to that, and I think a parallel would be the automotive market, where you look at let's say the United States and the more strict emission standards they have in California and the fact that certain automotive manufacturers have then had to make less polluting vehicles and then ultimately they sold them in other parts of the country because they already designed the technology. Do you think that even though Europe is a smaller portion of the overall shipping industry and total emissions, do you still think that the technological advances that are being driven by these stricter standard it will have a benefit to other parts of the world.

So Europe has aggressive targets, but they actually are not the vast majority of these shipping emissions, and so other parts of the world need to start kind of either adopting these or other other ways in order to I guess, get these shipping companies to actually look at adopting these newer fuels and newer technologies. And one of the questions I have as a follow on to that, and I think a parallel would be the automotive market, where you look at let's say the United States and the more strict emission standards they have in California and the fact that certain automotive manufacturers have then had to make less polluting vehicles and then ultimately they sold them in other parts of the country because they already designed the technology. Do you think that even though Europe is a smaller portion of the overall shipping industry and total emissions, do you still think that the technological advances that are being driven by these stricter standard it will have a benefit to other parts of the world.

I think the beauty of the shipping market is it connects different regions. So what's happening in Europe is not just Europe. Talk about your example, like if there's a car that's driving in California, then it'll probably remain most likely in US where when you talk about like a ship, and if it's even like exporting oil from Houston to somewhere in Europe, so that still pays like even though it's fifty percent, that still pays a carbon price based on its emissions even something come from China to Europe foot page. So that's a good start. There's a lot more visibility. Over the past four years, there was like a lot more data on an individual vessel, like how much they emit, how much they consume. Once the data is there, that's very important as well. Last week I was in Stamford, Connecticut, and this was one of the panel discussions, like what's going to be your US response to the EU ets and what they did with shipping, And I think like some of the discussion points was it is unlikely to see the national level thing, but as you mentioned, there will be like states that can come up and then set targets for themselves.

I think the beauty of the shipping market is it connects different regions. So what's happening in Europe is not just Europe. Talk about your example, like if there's a car that's driving in California, then it'll probably remain most likely in US where when you talk about like a ship, and if it's even like exporting oil from Houston to somewhere in Europe, so that still pays like even though it's fifty percent, that still pays a carbon price based on its emissions even something come from China to Europe foot page. So that's a good start. There's a lot more visibility. Over the past four years, there was like a lot more data on an individual vessel, like how much they emit, how much they consume. Once the data is there, that's very important as well. Last week I was in Stamford, Connecticut, and this was one of the panel discussions, like what's going to be your US response to the EU ets and what they did with shipping, And I think like some of the discussion points was it is unlikely to see the national level thing, but as you mentioned, there will be like states that can come up and then set targets for themselves.

I mean, shipping is about as global of an industry as it gets. And we've talked a bit about Europe, but I I want to know which part of the world is the largest source of shipping emissions.

I mean, shipping is about as global of an industry as it gets. And we've talked a bit about Europe, but I I want to know which part of the world is the largest source of shipping emissions.

The way we look at it is where you purchase the shipping fuel. So if you look at that, Unfortunately, Singapore, a very tiny country, would account for the highest share of emissions because it's a bunkering hub, but the actual demand comes from probably from like China in Europe and they're like probably fueling and Singapore on the way. So it's things like that where it is very easy to enforce it at the point of consumption. So that's why it's important to look at these hubs as well, and that's why ports have a very important role to play. And when you think about it, let's say the Port of Singapore, like Port of Rotterdam, they're all showing this new data on how much of these green fuels are being used, and they're like setting up studies and infrastructure required to have these bunkering hubs. It's also in their best interest because they're the biggest hubs. They want to remain the biggest hub even if the fuel changes or something, so they in a way they are also like leading the drive to get the new infrastructure so that they can provide the fuels required and then maintain their hub status.

The way we look at it is where you purchase the shipping fuel. So if you look at that, Unfortunately, Singapore, a very tiny country, would account for the highest share of emissions because it's a bunkering hub, but the actual demand comes from probably from like China in Europe and they're like probably fueling and Singapore on the way. So it's things like that where it is very easy to enforce it at the point of consumption. So that's why it's important to look at these hubs as well, and that's why ports have a very important role to play. And when you think about it, let's say the Port of Singapore, like Port of Rotterdam, they're all showing this new data on how much of these green fuels are being used, and they're like setting up studies and infrastructure required to have these bunkering hubs. It's also in their best interest because they're the biggest hubs. They want to remain the biggest hub even if the fuel changes or something, so they in a way they are also like leading the drive to get the new infrastructure so that they can provide the fuels required and then maintain their hub status.

Yeah, because these emissions are largely they're shared with everyone who is receiving the goods from the ship, so it is really hard to pinpoint. Let's talk a little bit about the demand side of things, and specifically I'm referring to oil demand, and when our research says that it's possible that oil demand for use in maritime could actually peak if these other technologies actually start to get real traction get underway.

Yeah, because these emissions are largely they're shared with everyone who is receiving the goods from the ship, so it is really hard to pinpoint. Let's talk a little bit about the demand side of things, and specifically I'm referring to oil demand, and when our research says that it's possible that oil demand for use in maritime could actually peak if these other technologies actually start to get real traction get underway.

Yeah, I think like we expect it, it's actually fairly soon, like in the twenty twenty five where we see a peak, but then the peak doesn't mean it's a fall off from there. So right now, like it's ninety eight percent of the total share, but they are like various other regulations as well that kind of drive efficiency in the shipping market, and then their fire they will reduced their fuel consumption and emissions from there. So we see oil demand and like shipping peaking at lound like five point five million birass per day in twenty twenty five, and that would go down to around that's a two point seven millionmbarrass per day by twenty fifty, and that would still be fifty percent of the total market share in twenty fifty, So even though there's a decline, it's still half of the market. So that just shows how difficult it is for like other fuels to ramp up because most of these vessels that are coming in and even the vessels that are there, they're going to stay on the sea for a long time because with the lifetime of like twenty five years approximately, it's some even extending more than that.

Yeah, I think like we expect it, it's actually fairly soon, like in the twenty twenty five where we see a peak, but then the peak doesn't mean it's a fall off from there. So right now, like it's ninety eight percent of the total share, but they are like various other regulations as well that kind of drive efficiency in the shipping market, and then their fire they will reduced their fuel consumption and emissions from there. So we see oil demand and like shipping peaking at lound like five point five million birass per day in twenty twenty five, and that would go down to around that's a two point seven millionmbarrass per day by twenty fifty, and that would still be fifty percent of the total market share in twenty fifty, So even though there's a decline, it's still half of the market. So that just shows how difficult it is for like other fuels to ramp up because most of these vessels that are coming in and even the vessels that are there, they're going to stay on the sea for a long time because with the lifetime of like twenty five years approximately, it's some even extending more than that.

It's hard to drive change. It's going to be slow.

It's hard to drive change. It's going to be slow.

So that's where like the regulations should be like much strict and like most of these ship on ers are not against playing even like higher cost as long everyone has to do it, but it will pass the cost across the value chain. That's for like oil. And then I think the biggest increase we see is for LNG, like with financial gas, but like there's also a lot of heat on LERNG with when it comes to like methane slips. So that's basically the fuel that's not exactly consumed, like a leakage kind of thing. So that's something that's concerning and there's more and more scrutiny over that as well. But in terms of looking at what's on order and although uptake and like growth in infrastructure, and then we have the alternative fuels well.

So that's where like the regulations should be like much strict and like most of these ship on ers are not against playing even like higher cost as long everyone has to do it, but it will pass the cost across the value chain. That's for like oil. And then I think the biggest increase we see is for LNG, like with financial gas, but like there's also a lot of heat on LERNG with when it comes to like methane slips. So that's basically the fuel that's not exactly consumed, like a leakage kind of thing. So that's something that's concerning and there's more and more scrutiny over that as well. But in terms of looking at what's on order and although uptake and like growth in infrastructure, and then we have the alternative fuels well.

And when we talk about the next phase with these alternative fuels, one of the things that comes up at a lot of the summits, and I hear people on stage in particular when they're referring to biofuels, is that the demand is there and the market is willing to pay a premium for some of these fuels in order to decarbonize, but the supply isn't necessarily there yet. So will we be able to ramp up the supply of biofuels or even these much newer fuels that have their own set of drawbacks, like ammonia or green methanol. Are we going to be able to balance supply and demand and will it catch up I guess in time in order to reach some of these emissions targets that have been outlined by the IMO.

And when we talk about the next phase with these alternative fuels, one of the things that comes up at a lot of the summits, and I hear people on stage in particular when they're referring to biofuels, is that the demand is there and the market is willing to pay a premium for some of these fuels in order to decarbonize, but the supply isn't necessarily there yet. So will we be able to ramp up the supply of biofuels or even these much newer fuels that have their own set of drawbacks, like ammonia or green methanol. Are we going to be able to balance supply and demand and will it catch up I guess in time in order to reach some of these emissions targets that have been outlined by the IMO.

Yeah, I think when we look at biofuel, and then the biofuel from shipping context is biodiesel because that's the one that's been used and like you blend it with various fossil fuels to get the standard blend that you want that you can use on ships. So in terms of supply, as I mentioned like how like shipping is interconnected, so biodiesel that comes from biofeedstocks, So it also depends on what the aviation industry is doing, what other sectors with biofuel will be used as doing as well, because as I've mentioned before, like there is uptake of biofol in certain regions, but not everywhere in terms of availability. I think going forward we see even when the demand from SAFF. That's very important because if airlines are paying to secure the sustainable aviation fuel, and like, if you're producing sustainable aviation fuel in a biorefinery, you won't get one hundred percent of sustainable aviation fuel from it. So if there's technical limitation as to how much you can maximize that, so you would have like by products from that as well. And if it is less, say fifty percent sustainable aviation fuel, you'll have thirty percent of biodiesel or something. So there will be like a lot of biodiesel supply that's going to come online on the back of let's say a SAFF uptake in airlines or something like that. But something that I find it very interesting is what's happening in the roads sector. So eventually we see ev uptakes in the roads displacing passenger cars that run on like gasoline and diesel, and we see a displacement of diesel in the road sector. And then when you displace diesel, like in a way, you're displacing the biodiesel that's used in the road as well. So once the displacement deepens after twenty thirties, we can see more of that supply that is available to use in like shipping, or even the feedstock that go into making that by diesel can be diverted to the biorefiners to make like saff and renewable diesel that can again be used in like the shipping sector.

Yeah, I think when we look at biofuel, and then the biofuel from shipping context is biodiesel because that's the one that's been used and like you blend it with various fossil fuels to get the standard blend that you want that you can use on ships. So in terms of supply, as I mentioned like how like shipping is interconnected, so biodiesel that comes from biofeedstocks, So it also depends on what the aviation industry is doing, what other sectors with biofuel will be used as doing as well, because as I've mentioned before, like there is uptake of biofol in certain regions, but not everywhere in terms of availability. I think going forward we see even when the demand from SAFF. That's very important because if airlines are paying to secure the sustainable aviation fuel, and like, if you're producing sustainable aviation fuel in a biorefinery, you won't get one hundred percent of sustainable aviation fuel from it. So if there's technical limitation as to how much you can maximize that, so you would have like by products from that as well. And if it is less, say fifty percent sustainable aviation fuel, you'll have thirty percent of biodiesel or something. So there will be like a lot of biodiesel supply that's going to come online on the back of let's say a SAFF uptake in airlines or something like that. But something that I find it very interesting is what's happening in the roads sector. So eventually we see ev uptakes in the roads displacing passenger cars that run on like gasoline and diesel, and we see a displacement of diesel in the road sector. And then when you displace diesel, like in a way, you're displacing the biodiesel that's used in the road as well. So once the displacement deepens after twenty thirties, we can see more of that supply that is available to use in like shipping, or even the feedstock that go into making that by diesel can be diverted to the biorefiners to make like saff and renewable diesel that can again be used in like the shipping sector.

We're in the business of talking about the future and about transformations and industries that are actively changing, and within here it's always some combination of the companies operating in that industry and the financial players and the policy incentives all coming together in this very mixed number of insects. But really, what do you think is most impactful here in terms of driving change? Will it come from the companies or the emissions targets or from technology innovation that is ultimately pushed by the companies and the emissions targets. I mean, really, what do you think is going to be the most important linchpin to achieving anything close to what the IMO target is for net zero emissions?

We're in the business of talking about the future and about transformations and industries that are actively changing, and within here it's always some combination of the companies operating in that industry and the financial players and the policy incentives all coming together in this very mixed number of insects. But really, what do you think is most impactful here in terms of driving change? Will it come from the companies or the emissions targets or from technology innovation that is ultimately pushed by the companies and the emissions targets. I mean, really, what do you think is going to be the most important linchpin to achieving anything close to what the IMO target is for net zero emissions?

Yeah, I think initial change should definitely come from the companies itself because the price premium, even if it's double the cost. You could have governments step in like have incentives, but they're giving tax credits to like the producers to make these screen fuels. You could bridge that gap. Right now, the premiums are it's like four to five times, so you you can't really go and spend as a shipping company and then like liable to the shareholders like why would you sending increase all these costs, So that's very difficult. So I think like when the companies set targets and then their clients request that, So it's very that the container ship companies are paving the way and that kind of sets the whole ecosystem of these green fuels that are being used in like various pots. It will drive the infrastructure and then like other shipping vessel categories like bulk carriers, they can use that infrastructure. They can see these container ship companies and they get the confidence like okay, we can invest in these assets as well. So it's more like a confidence thing that comes. So in the near term, I think the companies should take the lead. And also posts we're seeing something that's called the green corridors where like two ports and different regions come together and like set up pack basically like okay, let's use green fuels for these two posts. And that does trial a lot of change as well. Particularly while shipping is like global, there's sometimes there are like some routes that are consolidated, like a trade, whether it's want to take iron ore from Australia to China or something that they're like always these commodities and for each commodities there's a particular route that's there that's frequently used.

Yeah, I think initial change should definitely come from the companies itself because the price premium, even if it's double the cost. You could have governments step in like have incentives, but they're giving tax credits to like the producers to make these screen fuels. You could bridge that gap. Right now, the premiums are it's like four to five times, so you you can't really go and spend as a shipping company and then like liable to the shareholders like why would you sending increase all these costs, So that's very difficult. So I think like when the companies set targets and then their clients request that, So it's very that the container ship companies are paving the way and that kind of sets the whole ecosystem of these green fuels that are being used in like various pots. It will drive the infrastructure and then like other shipping vessel categories like bulk carriers, they can use that infrastructure. They can see these container ship companies and they get the confidence like okay, we can invest in these assets as well. So it's more like a confidence thing that comes. So in the near term, I think the companies should take the lead. And also posts we're seeing something that's called the green corridors where like two ports and different regions come together and like set up pack basically like okay, let's use green fuels for these two posts. And that does trial a lot of change as well. Particularly while shipping is like global, there's sometimes there are like some routes that are consolidated, like a trade, whether it's want to take iron ore from Australia to China or something that they're like always these commodities and for each commodities there's a particular route that's there that's frequently used.

I like that A green corridor is this good old fashioned collaboration between kind of two areas of the emissions and like you were talking about before, these points on the planet that we actually look at when we are measuring the emissions, that could be a substantial part of the solution.

I like that A green corridor is this good old fashioned collaboration between kind of two areas of the emissions and like you were talking about before, these points on the planet that we actually look at when we are measuring the emissions, that could be a substantial part of the solution.

Yeah, And ultimately IOMO has to drive the final change because like I trust in their abilities to get things done and aside the reason like twenty twenty regulation change. In twenty eighteen, twenty nineteen, that was all the oil industry was talking about, Oh there's going to be a new fuel. We don't know like how to produce that fuel. With discussions of first producing the fuel and then like those concerns of like hip notes as well, or we've not used this fuel before. But then when it came, you know, there was almost a compliance. It was higher costs. They had to pay much higher cost for a new fuel. Everyone paid for it there complying with it. So see, if IOMO wants it, they can easily get it done the countries together and then have like some kind of enforcement of that without IOMO police around the whole the high seas.

Yeah, And ultimately IOMO has to drive the final change because like I trust in their abilities to get things done and aside the reason like twenty twenty regulation change. In twenty eighteen, twenty nineteen, that was all the oil industry was talking about, Oh there's going to be a new fuel. We don't know like how to produce that fuel. With discussions of first producing the fuel and then like those concerns of like hip notes as well, or we've not used this fuel before. But then when it came, you know, there was almost a compliance. It was higher costs. They had to pay much higher cost for a new fuel. Everyone paid for it there complying with it. So see, if IOMO wants it, they can easily get it done the countries together and then have like some kind of enforcement of that without IOMO police around the whole the high seas.

I guess all right, the iMOS, the Lynchpin mohit. Thank you very much for joining us on the show today.

I guess all right, the iMOS, the Lynchpin mohit. Thank you very much for joining us on the show today.

Yeah, thank you so much for seeing me.

Yeah, thank you so much for seeing me.

Denna Switched On is produced by Cam Gray with production assistance from Kamala Shelling and Lushi Karunorade. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg Anniff should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance Lp. Nor any of its affiliates, makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed

Denna Switched On is produced by Cam Gray with production assistance from Kamala Shelling and Lushi Karunorade. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg Anniff should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance Lp. Nor any of its affiliates, makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed