Skip to main content
Marsh logo

Article

The future of maritime fuels

The COP28 summit closed with a deal to transition away from fossil fuels for the first time, signifying a critical moment for global climate negotiations.
Smoke exhaust gas emissions from cargo lagre ship ,Marine diesel enginse exhaust gas from combustion.
Person's name and title

By Stephen Harris , 

Senior Marine Technical Consultant

15/01/2024 · 6 minute read

Alternative fuels are becoming increasingly important in the maritime sector as it looks set to sustain its future.

The COP28 summit closed with a deal to transition away from fossil fuels for the first time, signifying a critical moment for global climate negotiations. While the COP agreement does not directly reference shipping, it calls for hard-to-abate sectors to accelerate the adoption of alternative technologies and fuels. In addition, from January 2024, the EU’s Emissions Trading System (ETS) was extended to cover carbon dioxide emissions from all large ships, steering the sector towards progress in its decarbonization efforts.

The commercial maritime industry is a vital part of the global economy, transporting more than 80% of goods around the world. According to Clarksons' data, global fleet tonnage has increased by 97% since 2008, and maritime trade continues to grow at around 3% yearly. At present, the majority of engines that drive the world’s traditional commercial vessels are fuelled by fossil fuels that include marine diesel oil (MDO), intermediate fuel oil (IFO), and marine gas oil (MGO). In 2021, more than 93% of vessels at sea (by tonnage) ran on these fuels. Developments are underway as the sector considers the use of alternative fuels.

What alternative fuels can vessels use?

Alternative fuels include methanol, liquefied natural gas (LNG), liquefied petroleum gas (LPG), biofuels, ammonia, hydrogen, electric, wind, sail, and nuclear power. In some cases, these fuels may be used as a “dual fuel” mixed with a small amount of traditional fuel to improve their ignition performance. Each fuel has advantages and disadvantages, presenting scientific and commercial challenges and risks for vessel operators, charterers, and insurers.

Several alternative fuels are carbon-based, such as methanol and LNG. While such fuel types may produce fewer emissions compared to traditionally fuelled ships, they are generally viewed as a temporary, transitional solution, whereas non-fossil carbon-based sources, such as biomass, may be more sustainable.

Vessels that continue to use carbon-based alternative fuels will face emission charges. Under the EU’s ETS, carbon credits must be purchased to pay for emissions created by carbon-based fuels during voyages within as well as to/from Europe from elsewhere in the world. Some non-carbon-based alternative fuels such as ammonia and hydrogen need to be blended with small amounts of traditional fuel during the combustion process (as dual fuels) to spark engine ignition and, therefore, will also require carbon allowances.

Furthermore, the cost of many alternative fuel types will likely be higher than traditional fuel oil initially. This concerns many vessel charterers, who are usually contractually obliged to pay for the fuel consumed while the vessel is under charter.

Additional concerns relate to supply. If a vessel is designed or retrofitted to run on an alternative fuel type, there must be adequate global fuel supplies and refuelling infrastructure wherever that vessel trades. It is unlikely that all alternative fuels will be adopted and/or supplied globally. A shipowner who chooses a fuel type that few others in the industry adopt may find it challenging to secure adequate supply of that fuel. This could also impact the vessel’s resale value if purpose built or retrofitted for a particular fuel type.

If the supply of a fuel type is unavailable, commercial vessel engines and alternative rotor propulsion systems (such as a Flettner rotor sail propulsion system, which could reduce a ship’s energy consumption) may operate using a mixture of different fuel types. However, a vessel running on more than one fuel has its own challenges, such as different storage and conditioning systems.

Risks for insurance cover

The operation of alternative fuel-powered vessels may present risks that have not yet been fully quantified and assessed by insurers and/or underwriters. As of yet, hydrogen is mainly untried and untested in a marine environment. Nuclear-powered commercial cargo vessels could be a technically viable alternative to traditional sources of energy, however, there are some concerns regarding the safety of nuclear material sailing internationally through the open seas. While electric vehicles are fast becoming a reality for millions of people around the world, whether batteries can power large commercial vessels at sea and for long periods of time is still unclear. The emissions generated during the production of batteries required to power a large commercial vessel are also a matter of concern.

Ammonia can be toxic and highly caustic if not handled correctly, posing a hazard to crews, marine life, and the engine. Ammonia, LNG, and hydrogen require energy to be kept at very low temperatures in a liquefied state (e.g., ammonia at –33O C, LNG at –162O C, and hydrogen at -273O C) and, as such, may present additional loading and storing challenges. New fuel types may also challenge storage facilities in some ports from a security and physical damage perspective. How these alternative fuels will perform under harsh maritime sea conditions over lengthy periods is also largely unknown.

Developing solutions together

There is much to be excited about, but also uncertainty surrounding the performance and safety of many alternative fuels, meaning the marine insurance market may take a cautionary approach. Insurers may look to manage and/or limit their exposure to losses arising from the use of alternative fuels in a number of ways, for example through the imposition of policy terms such as warranties, sub-limits, and/or exclusions.

The insurance industry has a significant role to play in supporting the maritime industry as it looks to invest in new technologies, considers alternative ways to operate going forward to reduce greenhouse gas emissions, and transitions to a lower-carbon future. Marsh’s Marine, Cargo & Logistics practice will continue to work with you and pursue risk transfer options that support your development and implementation of lower-carbon strategies.

Our people

Placeholder Image

Jennie Page

Head of Marine, Marsh Specialty Pacific

Luke Dheir

Luke Dheir

Principal, Marine - Pacific

Related insights

Cargo ship at port

Article

Increase in marine war risk raises P&I questions

05/08/2024
Ship sailing in the sea

Video

Marine, cargo, and logistics trends report webinar series

14/04/2024
Container stacker crane lifting up stacking container box in shipping yard.

Podcast

Plotting a course through supply chain disruptions during peak seasons and beyond

18/12/2023
default

Article

P&I club renewal update 2024

19/11/2023
View more

This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. LCPA 23/012

“Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”