What can Gulf countries do to help grow the use of green fuels in shipping?

The global shipping industry has pledged to halve greenhouse gas emissions by 2050

The LNG Sakura liquefied natural gas tanker arrives at Tokyo Gas Co.'s Negishi LNG terminal in Yokohama, Japan, on Monday, May 21, 2018. Tokyo Gas received Japan's first LNG shipment from Dominion Energy's Cove Point project today, the company said in statement. Photographer: Tomohiro Ohsumi/Bloomberg
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Untapped potential. That is the best way to describe today’s maritime biofuels sector in the Gulf. And that is surprising.

There is a dearth of this green fuel, despite the region’s ambitious green targets and the global shipping industry’s pledge to cut 50 per cent of its greenhouse gas emissions by 2050, based on 2008 levels.

Then there is the International Maritime Organisation’s new 0.5 per cent sulphur limit for bunker fuel, which came into force on January 1 this year. Complying with what is known as IMO 2020, which many consider one of the biggest changes to shipping in a century, has taken a lot of focus and financial commitment.

Add to that the impact of the Covid-19 pandemic and the subsequent economic strain, it is no surprise that this opportunity is still largely unexplored in the Gulf. But that must change – and quickly.

Global output of all transport biofuels grew at an annual rate of 6 per cent last year, to 96 million tons of oil equivalent.

An average 3 per cent growth is expected over the next five years but this falls well short of the 10 per cent annual global growth target needed to meet the Sustainable Development Scenario set by the International Energy Agency.

Under the SDS, low carbon fuels meet 7 per cent of international shipping’s fuel demand by 2030.

Yet the market’s current biofuel consumption is minimal. So how can the Gulf play its role and accelerate momentum?

There is a need to develop market architecture – building investor awareness, supportive policies and supply chain infrastructure.

More supportive policies are urgently needed to allow for advanced biofuel projects for shipping, which in turn would support compliance with IMO 2020. And there need to be eager players willing to grow this market.

No company or market is an island. A group effort lies at the heart of establishing a biofuels ecosystem that is both sustainable and commercially successful in the Gulf.

For our part, we can help strengthen the supply chain by collaborating with upstream players, policymakers, bunkering experts, port operators, shippers and more.

Specifically, as the market grows, we can discuss biofuel supply and storage options at our facilities at the Port of Fujairah. If you want to be a forerunner in this increasingly relevant market, leveraging the world’s second-largest bunkering hub is a good place to start.

Momentum is clearly building. In February, Adnoc’s Logistics & Services arm said it would test biofuel as a bunkering fuel for ships. Dubai-based Neutral Fuels has the first licensed biorefinery in the UAE, which converts waste vegetable oils into biodiesel to power delivery vehicles, school buses and other forms of transport.

Already, this has mitigated 10.5 million tons of carbon emissions from users. Surely lessons and best practices can be learnt from Neutral Fuels’ success in the road transport sector and applied to maritime?

The good news is that biofuels are flexible, which should help speed up market momentum. Biofuels are also considered the most "technologically ready" of the various zero-carbon alternatives currently under consideration for deep-sea shipping, according to the Sustainable Shipping Initiative.

Such fuels can be used as drop-in or blends with minor modifications to existing engines, machinery and storage systems, which simplifies the transition from existing fossil-derived fuels.

With the shipping industry still getting to grips with IMO 2020 and Covid-19, the simpler the biofuels market, the better.

There are questions about how robust supply will be. But without a crystal ball, we cannot pin down numbers just yet as this is still an embryonic market. What we do know is that a transparent environment with clear price signals and security of raw materials are pivotal to reinforcing investors’ confidence.

Another hurdle is the possibility of indirect or unintentional environmental damage. This is extremely difficult to monitor, making it hard to change.

But we do know that SSI’s research revealed a preference for biofuels to be sourced from municipal, agricultural and forestry waste streams, rather than purpose-grown crops such as palm and soy.

A single certification methodology that addresses the questions and concerns around indirect and systemic impacts of biofuels would also help.

Perhaps this is an area of expertise that Gulf countries, many of which are also keen on becoming knowledge-based economies, could explore to reflect their commitment to the energy transition?

This, and so many other areas – such as supportive policies or building a network of biofuel storage providers – could be golden opportunities to spur a green fuels market that the region truly needs.

Lars Liebig is managing director of Uniper Energy DMCC