By
James Frew |
“The best decarbonisation solution today is methanol”. Those were the words of Frank Del Rio, president and CEO of Norwegian Cruise Line Holdings, before declaring the company would do “whatever science allows us” when he set the target of retrofitting a vessel with a methanol engine by 2025.
But if methanol is the likely fuel of the future for the maritime industry, why is the uptake currently slow? The greatest challenge for adopting this fuel is ultimately an economic one; it costs significantly more than fossil fuels.
If we estimate that green methanol costs around $850 per tonne, then converting a cruise ship burning 30,000 tonnes of very low sulphur fuel oil (VLSFO) per year to run on methanol would more than double fuel bills, from $19.5 to $40.5 million – assuming that fuel prices of $650 per tonne for VLSFO and $1,100 per tonne for marine diesel oil. Whilst this delta is significant, it is also worth contextualising. In 2019, Carnival Corporation spent $1.6 billion on fuel, against revenues of over $20 billion. Even doubling fuel spending would take costs to less than 15 per cent of total revenues.
It is also worth bearing in mind that switching to green fuels also may bring significant benefits. Cruise lines spend significant amounts on marketing; in 2019 Royal Caribbean Group’s marketing, selling and administrative costs were more than double its fuel bill. Research has suggested that environmentally conscious customers are more likely to prove ‘sticky’ to a green cruise line, suggesting that the use of green fuel may offset certain marketing costs. Additionally, the rise of carbon taxes in certain regions will also narrow the price gap between green and conventional fuels. More broadly, for cruise lines to maintain their social license to operate, they will need to make efforts towards decarbonisation.
Putting aside the economics of fuel price switching, fuel availability is a barrier for the cruise industry’s energy transition. There is very limited availability of methanol in major bunkering hubs for cruise lines, which often do not map well onto existing bunkering hubs for deep-sea merchant vessels, and little in the way of plans to increase supply. This issue is particularly acute, taking into consideration the high fuel consumption of cruise ships as a result of their significant hotelling needs. A rough estimate would suggest that the potential reduction in range for cruise ships if retrofitted to burn methanol, would be meaningful, with methanol occupying around 2.5 times the space of an equivalent energy volume of heavy fuel oil.
Transatlantic crossings signpost the potential impact of these issues. The roughly 4,000 nautical mile distance from Miami, Florida, to Barcelona, Spain, is not currently a challenge for many cruise ships built in the late 2000s, such as Celebrity Cruises’ Celebrity Solstice and Royal Caribbean International’s Oasis of the Seas. Retrofitting to methanol without adding tank capacity (such as converting ballast tanks, the solution used in the case of the Lloyd’s Register-classed Stena Germanica) would have left Celebrity Solstice capable of only half the voyage, whereas Oasis of the Seas would have been 30 per cent short.
The shift to methanol will leave cruise lines needing to reconfigure sailing schedules, add bunkering locations and supplement infrastructure. This represents a significant challenge, and one which would best be addressed on an industry-wide basis. Here though, there is a clear precedent – cruise lines in the Caribbean faced a similar challenge with the availability of quality ship repair yards, which was overcome by joint investment in the Grand Bahama Shipyard in the Bahamas. Similar joint investment projects in bunkering capacity would significantly ease the path towards the transition.
Despite potential barriers, methanol still represents significant opportunity as future fuel for cruise ship owners who are willing to invest. It does not have the same overtly dangerous profile when compared to ammonia. As a liquid it is less prone to be inhaled and ingested, and e-methanol is less likely to cause controversy than biofuels – which, except for when produced from waste, face their own sustainability concerns – as production is scaled up.
James Frew is business consultancy director at Lloyd’s Register