Greece is a country where shipping has always played a central role since ancient times due to the dominance of the Greek language and the renowned seamanship of its people.
In recent years, international shipping has been faced with increasing challenges on the energy front, starting from the IMO-mandated reductions in greenhouse gas (GHG) emissions for 2030 and going towards carbon-neutral situation as soon as possible after 2050.
The goal is to satisfy the Paris Agreement concerning the acceptable upper limit in the global temperature increase in order to prevent a major and irreversible environmental disaster.
Overall it can be argued that in both the energy and shipping sectors the interplay between climate change, technology and economy is going to set up the pace of development across the world.
In an interview to Antonis Papagiannidis, Dinos Arcoumanis, Ambasador-at-Large of Greece for Energy Policy and New Technologies, Director and Member of the Board of the Angelicoussis Shipping Group and member of the Energy Committee of the Academy of Athens, talks about shipping and energy with Antonis Papagiannidis, the future of natural gas as transition fuel, green hydrogen and green ammonia in the race to become the dominant marine fuels, the total cost of decarbonisation and the Greek proposal to EU for an alternative approach to the Emissions Trading System (ETS).
On the road for de-carbonisation, Greece (as well as, in fact, Europe) will be using natural gas as a major transition fuel – especially to fire power stations. As LNG carrier, shipping – and Greek shipping at that – assumes a central role in this transition; still, the EU seems to frown on natural gas. Is this a further factor of uncertainty? Does it add financing costs?
To put the shipping and energy sectors into perspective, let’s start with some statistics. In Europe transportation as a whole is responsible for about 25% of GHGs while in Greece its relevant contribution is about 37%. International shipping is widely accepted as the most friendly to the environment transportation mode in terms of its work producing (ton miles) capability, contributing no more than 3% of GHGs globally and some 13% across Europe. Greek shipping, in particular, represents after Brexit about 58% of the European fleet and some 20% of the global fleet in terms of tonnage.
Returning to the role of natural gas, more than 10 years ago the EU promoted the use of LNG as bunker fuel by partly funding infrastructure costs in ports. But the irony is that soon after environmentalists and scientists started talking about the highly undesirable leakage/slip of methane into the atmosphere during its lifecycle which includes production, transportation and combustion. Their argument is that despite the benefits of lower CO2 emissions during combustion, methane leakage into the atmosphere is some 36 times more harmful over a 100-year period than CO2. On the other hand, there are quite a few who consider natural gas as the best bridging fuel at present between conventional and alternative fuels due to its lower carbon content than fossil fuels, thus outperforming methanol and ammonia, as well as its ability to produce alternative fuels albeit with significant CO2 emissions. There are also those who argue that LNG cannot be a transition fuel since it cannot be easily used for dry bulkers and tankers but it is convenient as a fuel for ships carrying LNG in their payload. On the positive side, the use of LNG in dual-fuel engines offers considerable flexibility for green alternative fuels to be burned in modified marine engines when these fuels (such as hydrogen and ammonia) become available and also at a local rather than global level, the use of natural gas offers significant advantages in terms of reduction of sulphur oxides, nitrogen oxides and particulate emissions.
Contrary to oil majors which continue to invest in LNG, others like the World Bank downplay the future potential of LNG as a shipping fuel arguing that the demand for LNG will decline rapidly after 2030 and it will become useless when shipping finally decarbonises. In this respect, the large scale use of LNG in the long term is obviously not consistent with IMO’s strategy for 2050 and its opponents as a bridging fuel are expected to increase rather than decrease in the years ahead.
The bottom line is that the above discussion increases the uncertainty in both the shipping and energy sectors over the role of natural gas/LNG during the energy transition and this is expected to intensify towards 2030. However, today’s marine dual-fuel engines burning both LNG and low sulphur fuel can act with modifications as the bridging technology for future use of green fuels, thus offering some limited ‘certainty’ but at considerable cost, for the way forward in terms of the preferred propulsion technology onboard existing ships and newbuilds. Shipowners’ main worry is how to maintain their asset value by upgrading their vessels during their lifetime while engine manufacturers are looking for fuel system modifications that could ease future transition to combustion of green fuels.
The future of natural gas
Greece – and Cyprus, at that – have been looking forward to exploit hydrocarbons in the East Mediterranean area. Since the EastMed Gas Pipeline seems relegated to a later stage (if it proves economically feasible), liquefaction may be the name of the game. To what extent will Greek shipping keep investing?
In order to understand the interest for hydrocarbon exploration in the East Mediterranean we need first to comprehend the energy developments in the rest of Europe. Historically, countries representing the EU have never been serious energy producers depending for resources on imports from the third world. Therefore, the recent strong interest in the EU for the environment following the Paris Agreement represents also a defence mechanism against the large imports of oil and gas which continue to be a major financial drain on most European countries including Greece. The imports of natural gas are expected to increase during the energy transition period during which lignite will be phased out replaced by gas until renewable sources become the dominant component in the energy mix. Furthermore, the significant investments in technology, as part of the EU’s Green Deal, are aiming to explore its scientific and technological superiority across most energy developing fields including transportation.
The search for hydrocarbons in Greece started more seriously in 2011 when some 8 geophysical companies expressed interest to participate in research in the Ionian Sea and around Crete. The results were encouraging and the Energy Ministry decided to divide the areas of interest into 20 blocks following approval by Brussels. Since then research has been gradually diminishing as multinational companies are gradually withdrawing from the area of upstream. It is therefore encouraging that Total is returning to Greece for gas exploration this summer maintaining the strong tradition of French companies to search for hydrocarbons around Crete which started in 1978.
In the Eastern Mediterranean there are two major gas fields: the Tamar field of Israel and the much larger field of Zohr in Egypt considered the largest field in the region. For Tamar there is a partnership developing between Israel, US and UAE for providing Israeli gas to Europe and strengthening its energy security against Russia’s Gazprom. The transfer of part of the Zohr gas to Europe is still a matter of discussion with Turkey potentially interested to transfer gas through pipelines on its land while Greece would rather prefer to take advantage of the Eastmed project for securing adequate quantities of gas during the energy transition period. Eastmed represents a partnership between Israel, Greece and Cyprus for the transfer initially of Israeli gas until adequate resources are discovered in Greek and Cypriot territorial waters. It is a technically demanding project with a combination of deep sea and dry pipelines linking Israel, Cyprus, Crete, Western Greece, Albania and Italy. Despite the commitment of its partners, there are still uncertainties about whether the project will take off. A more convenient and cheaper alternative could be for gas produced in Israel and Egypt to be locally liquified and then transferred by LNG tankers to ports in Greece, such as Alexandroupolis, from which following regasification to continue to Europe through existing pipelines within the Balkans. Transfer of gas in liquified form with LNG tankers represents a specialised and quite expensive mode of natural gas transportation where Greek shipowners have a dominant role internationally.
The shipping community will try and conform to ever-stricter standards of pollution due to marine fuel. How will short-to-medium-term goals, such as those already set by the IMO, combine with longer-term ones?
The cleaning of marine fuels, which started on 1/1/2020 with IMO’s decision to reduce the sulphur content from 3.5% to 0.5%, has brought an unprecedented level of anxiety to the shipping community. Some, representing a small minority, have taken advantage of a loophole in the regulations to use scrubbers as means of continuing to use cheap 3.5% sulphur fuel while the vast majority of shipowners followed the spirit of the regulations searching for expensive 0.5% fuel which unfortunately, in a few limited cases, caused damage to the ship engines due to the undesirable lubrication and combustion properties of the available fuel blend.
The next major step of IMO in the cleaning process of ship engine exhausts is to extend the Energy Efficiency Design Index (EEDI) applicable to newbuilds to existing ships through the introduction of a combination of technical and operational measures such as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Index (CII). Both these short-term measures will be introduced on 1/1/2023 with the goal to achieve the 2030 level of ambition, i.e. the reduction of CO2 levels from shipping by 40% relative to the 2008 levels. The target of these measures is existing ships which has intensified the efforts of the technical staff in shipping companies to revisit the CO2 levels emitted by their ships as a function of their deadweight, cargo, speed and distance travelled during both the laden and ballast parts of their journey. Their task is to come up with the attained EEXI levels and compare them with the required by the regulations EEXI values, similarly to the corresponding CII values. In case a ship is considered non-compliant, a thorough analysis is needed to explore all possible measures for reaching the required efficiency which include:
Engine power limitation/optimisation
Installation of energy saving devices
Use of low carbon fuels
What really complicates the environmental strategy of shipping companies is that, parallel to these short-to-medium term efficiency measures, their technical staff have to start addressing the long-term IMO measures which at present dictate 70% reduction of CO2 levels coupled with 50% reduction of all greenhouse gases by 2050. The urgency in addressing these long-term measures stems from the need of shipping companies, sooner rather than later, to decide on details of their decarbonisation strategy which will guide them in terms of ordering new ships since their lifetime is 20–25 years. The increasing voices within the EU for complete decarbonisation of the shipping industry by 2050 complicates even further the decision making process of the shipping companies, with many waiting to see what the bigger companies are going to do.
The truth is that decision at this stage is an “impossible” task since there are very few promising zero-carbon fuels able to meet even the strictest environmental regulations; unfortunately these are not commercially available, yet while there are still outstanding technical issues to be overcome prior to their mass production irrespective of cost. On top of this, the acceptability of LNG as a transition fuel has been seriously questioned. The only more positive point is the increasing confidence that marine engines, with appropriate tailored-made modifications, will be able to burn efficiently and safely any zero-carbon fuel provided storing and transportation issues can be resolved. At present green hydrogen and green ammonia are well ahead in the race to become the dominant marine fuels beyond 2050 but there is still a very long way before orders for new ships are placed based on this technology.
The full interview of Dinos Arcoumanis is available in the May/ June 2021 issue of Greek Business File, available here