How I learned to stop worrying and love the green transition

The way we pay for our bunkers will change this decade. Carl Martin Faannessen, CEO of Manila-based Noatun Maritime, explains why.

The energy landscape is shifting beneath our feet and keels. As in any tectonic shift, there is no shortage of headlines ridden with exclamation marks and visions of endless problems. But they are mostly wrong. They’re also a bit too shipping-myopic; this change goes far beyond our industry.

Not a day goes by without a class society approving a ship design utilising zero-carbon fuels. The orderbooks are filling up with vessels that will run on methanol and ammonia. LNG and LPG play a meaningful role, and will continue to do so, as will HFO/VLSFO/MGO for the foreseeable future.

Where to get the green fuels? There will be fuels, but initially under a business model most shipowners will not be too happy about.

Most companies developing projects for green fuels do so on a non-recourse finance basis. This only means that they do not expose the parent balance sheet; all the debt is at project level with no way to cut through to the parent.

For the banks to accept this, they need to see a few things. Perhaps the most important is an enforceable long-term contract to sell the green fuels at a price that allows the banks to be repaid. A typical duration would be 12 to 15 years, and the banks will want to see guarantees from the shipowner or charterer that the contract can and will be honoured for that duration.

Therein lies the change in the bunker business model. Which shipowner or charterer today has a bunker contract of that duration? With full price predictability? None. The upside? No bunker cost surprises. The downside? Locked in for a very long period of time, and you pay for the agreed quantity of fuel whether you take it or not. Another possible downside? You may have to tie up equity on your balance sheet through the guarantees you must give, though there are ways around this possible downside.

This makes it a game for the big players, the ones who have a balance sheet they can put to work securing these long-term contracts. This is also why it is so far only the big beasts of shipping that have gone down this route, and even then on a dual-fuel basis.

The fuel developers and the large shipowners and charterers will drive the green fuel industry to scale over the next decade. There will even be spare capacity when compared to the contractual commitments, which will allow traders and smaller shipowners to come in on business models they are more familiar with.

There will be green fuels. You can ignore the breathless commentary.

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