Mid year thoughts on geopolitics and alternative fuels

Well, here we are…halfway through the year, with the big July 4th Holiday (in the States, anyway) coming up. The first half of 2022 has been consequential, if nothing else. I did have a chance to catch up on various energy related webinars, courtesy of Rystad Energy (which had two online events in the past week), and the New York Energy Forum (Chatham House rules so I can only mention ideas without attribution). The clear trend, and this is well known, is the shift already underway on the products side (and also in parts of the crude trades) – where Russian cargos are moving longer distances, to India certainly, and maybe into southeast Asia, while Europe will up its sourcing from the Middle East (which historically sent more barrels into Asia). What’s less clear are whole geopolitical angles, one un-named wag (Chatham House and all that, sorry, guys) came up with a scary thought when the subject came around to trade flows. Forget about the “down by 30%” or “down by 50%” forecasts; what if the Russians decide to completely starve oil buyers in all geographies?  With little spare capacity around, watch oil prices soar if that dire geopolitical gambit actually happened. 

While previously private shipping companies are openly touting their “green” creds (I love it-always good to shine some light on the darker crevices of the marketplace), the backdrop is a bit darker. On all the webinars and calls that I’ve listened in to, the talk has turned increasingly to “energy security”- which means that, in the short term, it’s important not to turn off the spigots- even if carbon emitting fuels, rather than the cleaner stuff, are flowing from them. Simply put, an orderly transition is needed, away from the present fossil fuels, into the “greener” alternatives- which are still the subject of great experimentation. However, here we are, seven months after “COP26” (the meeting in Glasgow), and we’ve not agreed, collectively, on what is shipping’s fuel of the future. Every week, there are new announcements, repping different fuels and technologies. CMA CGM, the liner giant, is hooking up with an oil major to bolster its Asian supply of LNG. Berge Bulk, the large owner, will be experimenting with wind power- retrofitting a “Newcastlemax” (bigger than a Capesize) bulker with sails. Meantime, a Swedish company I had never heard of, something like ABC Shipping (Tsvi Rosenfeld, I miss you) has ordered an electric hybrid ice classed bulker, from a yard in India. 

One development that I can’t decide whether is good, or bad, is the failure of the International Maritime Organization (IMO), at its recent environmental meeting (MEPC 78, in early June), to take positive action on a proposed fund that would have supported research and development on new fuels for the maritime industry. On the one hand, research and development is a good thing, but, on the other hand (yes, I know, I know) there are always questions, in my mind certainly, about whether any kind of centrality, or coordination, would actually work in an industry full of fragmented businesses and individualists. Consider this week’s alternative fuels news reprised above- actually the industry is doing very well on the experimentation front- without guidance from a fund tied to the IMO. At the various industry events, back with a vengeance, an oft-spoken line is “…there will not be just one fuel…”

So, as we move into Q3, I am hoping that the industry will start making positive moves on how to price carbon; this will be tied to bigger developments (like the European Union’s plans, now coalescing, for a trading scheme). But with those multiple fuels, shipowners and charterers (who will be paying, in my view of shipping’s future) carbon pricing will provide a common denominator for rational choices. 

Until then, readers please enjoy the fireworks!