E-fuels and the decarbonisation of the shipping industry

The first of a series of webinars about the decarbonization of so-called 'hard-to-abate' industries just took place for Swiss Re clients. This webinar, organized by Global Specialty and Swiss Re Institute, looked into the global shipping industry's future with e-fuels.

Global shipping accounts for roughly 3% of all CO2 emissions and its importance is felt and seen across the globe. This key industry looks to a future with e-fuels as an important element of the energy transition in shipping. In this webinar, the experts shared insights into various types of e-fuels and their inherent challenges, from transportation to storage and usage.

Hosted and moderated by Swiss Re Institute's Head Market Intelligence Jonathan Anchen and Swiss Re's Head ESG Property, Casualty & Specialty UW Samantha Dunn, the webinar heard from three experts: Christos Chryssakis, Business Development Manager at DNV Maritime; Swiss Re Engineering Underwriter Rocky Mashi; as well as Swiss Re Senior Marine Specialist Simon Wegmann.

In the opening presentation, Rocky Mashi gave an overview of where we stand with e-fuels. With fluctuating gas prices, and the ongoing climate crisis as an ongoing concern, renewable energy generation has seen a steady rise in recent years. However, to meet 2050 net zero targets, solar and wind energy generation still need to dramatically increase.

Mashi set the scene by making the case for e-fuels. They are diversifying the energy supply sector; they don't disrupt current supply chains; and they offer the hard-to-abate sectors opportunities to move toward and embrace a new energy regime.

Among the key risks is the fact that e-fuels are, indeed, chemical fuels. As such their properties come with inherent risks that require mitigation efforts and, of course, risk protection.

DNV, a leading classification society, is also a recognized advisor for the maritime industry. As such, Christos Chryssakis was in the perfect position to share the challenges and progress of maritime decarbonization efforts.

He began by highlighting that a great deal is happening to create the necessary regulatory frameworks and standards. He suggested that standards/definitions should see clarity later this year. First measures have already been rolled out and the various regulatory bodies are working fast – as the maritime industry, as of next year, will also be included in the EU's decarbonization efforts.

While targets are becoming stricter and pressure increases, Chryssakis explained that these are positive developments for the industry as everything to do with decarbonization will actually save the maritime industry, in his words, a lot of money.

While the vast majority of the maritime fleets across the globe still run on fossil fuels, there is a clear increase in the use of LNG (Liquified Natural Gas) in recent years, as well as a surge in e-methanol. Chryssakis said that they expect to see e-fuels as an important element going forward.

E-fuels, as already highlighted in Rocky Mashi's opening presentation, come with various risks. The main risks are those of toxicity, fire and explosion and for these, rules have already been developed and instituted to segregate e-fuels, protect against leaks and early detection measures, as well as automatic isolation of leakages.

E-methanol

Methanol is an intriguing e-fuel that has already proven its mettle. Chryssakis stated that it is "relatively easy" to handle – but that the colorless liquid has a low flashpoint and thus brings with it high fire and explosion risks. Interesting to note that, should a leak or spill occur, e-methanol dissolves in water and has, according to Chryssakis, very little effect on marine life.

The above depiction illustrates just how far methanol-powered container ship knowledge has progressed already. Chryssakis recounted that the general experience with tankers that run on e-methanol is good and the fact that e-methanol tanks need more than twice the size of traditional tanks is apparently no issue.

E-ammonia

This e-fuel represents quite a different story. Where e-methanol is in use already, e-ammonia is still in development – for now, there a no e-ammonia-fueled carriers. Chryssakis expects the first e-ammonia engines to be available as early as next year – and a first vessel by 2025. DNV are updating their class rules and work with the makers at every step.

While there are, as with any innovation, challenges along the way, things are progressing swiftly with e-ammonia. Chryssakis said that the main risk with ammonia is its toxicity, which makes it very dangerous for humans.

Simon Wegmann started out by saying that the maritime industry is embracing the change that is required to meet our net zero 2050 goals and mitigate against the threats of global warming. The insurance industry, in all of this, is an important partner through its alliances, research and underwriting practices. The changes tackled by the maritime industry come with transition risks and underwriters should be aware of altering insured values and cargo capacities. The impact on premium, he said, is a question mark for now.

Wegmann explained that e-fuels will impact the whole re/insurance value chain and that Swiss Re doesn't just look it from an underwriting perspective (where the focus is on terms and conditions, risk appetite and reinsurance alignment), but also with a view to claims, marketing, sales, etc.

In closing, Wegmann restated that shipping is clearly among the hard-to-abate industries, and that e-fuels can become important elements of this industry's decarbonization journey. He affirmed that, while wide-scale adaptation will take time, the insurance industry is already active with its risk transfer offerings to mitigate against the risks that inevitably come with innovation.