Maritime consultancy delivering applied solutions for a carbon constrained future
Aggregate investment for the
decarbonisation of the shipping industry
Raucci Carlo, Bonello Jean Marc, Suarez de la Fuente
Santiago, Tristan Smith, Kasper Søgaard
January 2020
2
Efficiency gains alone can’t achieve the IMO’s GHG reduction targets; a transition
to zero-carbon fuels and electricity from renewable energy resources is needed
Source: UMAS (2019)
2050 decarbonization (1.5oC aligned)Emissions (million tonnes CO2)
The International Maritime Organization has committed to reducing greenhouse gas
emissions from international shipping by at least 50% by 2050 (2008 baseline)
Scenario analysis suggests a leading role for ammonia with rapid growth post
2040 and between 75-99% market share by 2050
The scenarios suggest ammonia is likely to represent the least-cost pathway for
international shipping
Source: UMAS GloTraM (2019)
2050 decarbonization (1.5oC aligned)GJ
2070 decarbonization (IMO aligned)GJ
The investment in fuel supply infrastructure represents the major share of
decarbonisation investment costs
Source: UMAS GloTraM (2019)
Note: Sum of the investment costs up to 2050. Decarbonisation by 2050 scenario assuming a mix of NH3 production methods (SMR+CCS and electrolysis)
Investment costs up to 2050 capex only
Aggregate investment costsPercentage
Although this is associated with an
‘ammonia scenario’, it can be
considered close to other
decarbonisation pathways using
hydrogen and/or methanol. The
overall order of magnitude of
investment would be similar;
hydrogen would need less capex
investment for the supply
infrastructure, methanol likely a little
more. In all pathways a major
common element will be major
investment either in SMR/CCS,
electrolysis or some combination of
them both
Energy efficiency
technologies; 1%
Engines and storage ; 12%
Infrastructure for low-carbon
fuels; 87%
Source: UMAS GloTraM (2019)
Aggregate investment costs by scenarioUSD trillion
Total aggregate investment costs for decarbonisation by 2050 equal USD1.65
trillion across the three cost components
The total cost of decarbonisation up to 2050 is 27% higher in the 2050
decarbonisation scenario compared to a 2070 decarbonisation scenario
12% 12%
87%
88%
0,000
0,200
0,400
0,600
0,800
1,000
1,200
1,400
1,600
1,800
decarbonisation by 2050 decarbonisation by 2070
USD
Tri
llio
n
Energy efficiency technologies Engines and storage Infrastructure for low-carbon fuels
The investment in fuel supply infrastructure represents the major share of the
decarbonisation investment costs and is sensitive to the ammonia production pathway
Source: UMAS GloTraM (2019)
Note: The infrastructure costs exclude the infrastructure for renewable electricity production
For the SMR+CCS option, a cost of approximately 20 USD/ ton CO2 has been assumed
Fuel supply infrastructure represents approximately between 85% and 90% of
total cost of decarbonisation; cumulative total capital investment by 2050 is
estimated to be USD 1 – 1.9 trillion
Aggregate investment by scenario USD trillion USD trillion
The estimates includes
only capex. The
energy prices
(electricity and gas
prices) need to be
taken into account in
order to identify the
least cost production
option
85%88%
89%
0,000
0,200
0,400
0,600
0,800
1,000
1,200
1,400
1,600
1,800
2,000
produced withSMR+CCS
produced with amix of SMR+CCSand Electrolysis
produced withelectrolysis
Decarbonisation by 2070
supply infrastracture onboarrd ship
85.5%87.5%
89.0%
0,0000,2000,4000,6000,8001,0001,2001,4001,6001,8002,000
produced withSMR+CCS
produced with a mixof SMR+CCS and
Electrolysis
produced withelectrolysis
Decarbonisation by 2050
supply infrastracture onboarrd ship
7
0
100
200
300
400
500
600
700
800
900
1000
2031 2036 2041 2046 2051
Mt N
H3
decarbonisation by 2050 decarbonisation by 2070
Source: UMAS GloTraM (2019)
Note: assumes NH3 constant price of USD603/tonne from 2030; reported 2018 global ammonia capacity was 188Mt
Annual ammonia demand could increase by 670 to 946 million tonnes and represent
a potential 5 USD trillion market up by 2050
Growth in ammonia for shipping could represent +400% capacity increase relative
to 2018 global ammonia production capacity
Ammonia market opportunityMillion tonnes ammonia
The costs of the zero carbon fuel infrastructure would vary by supply configuration
and production pathway
Source: UMAS GloTraM (2019)
Capital cost breakdown for ammonia infrastructure by production
pathway under the decarbonisation by 2050 scenario
4%
43%
11%
8%
40%
29%
8%
6%
27%
14%
10%
$-
$200.000
$400.000
$600.000
$800.000
$1.000.000
$1.200.000
$1.400.000
$1.600.000
$1.800.000
based SMR+CCS based on Electrolisis
mill
ion
USD
Water treatment Electrolysier
Air separation Haber-Bosch
Refrigeration and NH3storage SMR+CCS
H2 compression & storage
• the capital costs associated
with the electrolysis of
hydrogen and the Haber Bosh
process represent a significant
share (~72%) when ammonia
is produced from electricity
• Whereas the cost associated
with the Haber-Bosch and
reforming of hydrogen plant
with carbon capture storage
process represent a significant
share (67%) when ammonia is
produced from SMR+CCS
APPENDIX
9
• Two global CO2 operational emissions target trajectories are identified. One assumes a full decarbonisation
by 2050 and another assumes a 50% reduction by 2050 and full decarbonisation by 2070.
• A significant technology change is expected to achieve such target trajectories
• The aim is to assess the aggregate scale of additional investment against a BAU scenario required to achieve
those targets.
• The additional investment includes: the ships (engines, storage and energy efficiency technologies) and the
low-carbon fuels supply infrastructure
The aim is to assess the investment required under two
decarbonisation scenarios
10
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1200
2015 2022 2029 2036 2043 2050 2057 2064 2071 2078
Mill
ion
CO
2
decabonisation by 2050
50% reduction by 2050 andDecarbonisation by 2070
Global CO2 operational emissions target trajectories
Produced by UMAS: www.u-mas.co.uk
In these scenarios, the evolution of the fleet is based on a profit
maximization approach under a constraint on emissions trajectory
Profit-maximization approach to assess the future evolution of the shipping fleet
• The UMAS Global Transport Model (GloTraM) was used to simulate the evolution of the fleet. It enables a holistic analysis of the global shipping system, including how shipping activity, costs and emissions might change in response to developments in economic drivers such as fuel prices and to changing environmental regulation.
• The model assumes that individual owners and operators attempt to maximise their profits at every time step, by adjusting their operational behaviour and changing the technological specification of their vessels.
• At each time-step, the existing fleet’s technical and operational specification is inspected to see whether any changes are required. Those changes could be driven by regulation (e.g. a new regulation of SO2 and NOx emissions) or by economics (e.g. a higher fuel price incentivising uptake of technology or a change in operating speed). Taking the fleet’s existing specification as a baseline, the profitability of a number of modifications (e.g. technology, main machinery, design speed, and fuel choice) applied both individually and in combination is considered, and the combination that returns the greatest profit within the user-specified investment parameters (time horizon for return on investment, interest rate, and representation of any market barriers) is used to define a new specification for the existing fleet for use in the next time-step
• Further, a specification for newbuilds is also generated at each time step. At the baseline year the specification for newbuilds is taken as the average newbuild ship specification in the baseline year. Changes to the technology, main machinery, design speed, and fuel choice of the baseline ship are considered, such that the combination that meets current regulations and generates the highest profits within the constraints of the user-specified investment parameters is selected. The algorithm calculates the operational speed at the year when the newbuild enters the fleet.
• One output of the model is the carbon prices trajectory needed to meet the identified
emissions trajectory. It is calculated endogenously by the model in an iterative mode.
11
Modelling outputs showing the CO2 operational
emissions projections of a subset of the total fleet.
The subset covers ~70% of the operational energy
demand of the total fleet
The second y axis shows the associated estimated
carbon prices needed to achieve such emissions
trajectories
The modelled CO2 operational emissions
projections are in line with the identified target
trajectories within +/-10% degree of misalignment.
0
200
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600
800
1000
1200
2016 2021 2026 2031 2036 2041 2046 2051m
illio
n t
on
s C
O2
CO2 operational emissions - decarbonisation by 2050
CO2 operational emissions - decarbonisation by 2070
Produced by UMAS: www.u-mas.co.uk
The scenarios assume an increase in transport demand resulting
in an increasing number of ships over time• The global shipping demand scenario that was used in both scenarios is the RCP 2.6 SSP2(1) , GloTraM global trade datasets were
adjusted to match this. Speed varies slightly between scenarios, but not so much as to materially impact fleet size
• The number of the modelled ships increases over time in all scenarios in a very similar way, reaching almost 90,000 ships in 2050
12(1) http://www.iiasa.ac.at/web/home/about/events/8.detlef.ssps_2.pdf
Notes: The blue lines indicate the GloTraM generated values while
the red lines indicate the input data values. Note that for container
vessels (unit_cont) there are two blue broken lines: one is based on
tonne to TEU ratios of 8 and the other a tonne to TEU ratio of 10.
Comparison of generated global transport work demand within
GloTraM against RCP2.6/SSP2 transport demand scenario for
the three ship types
Notes: The first time-step 2016 to 2021 there is a decreasing number of ships because the model estimates the
number of ships that would be active over the number of total ships available at base year. So, if demand is insufficient
some ships are laid-up.Produced by UMAS
The capital cost associated with the changes in energy efficiency
technologies are comparable with the BAU scenario
• The additional investment cost relative to the BAU scenario is
driven by market forces, overall this is comparable with the
decarbonisation scenarios because the latter uses a large amount
of low-carbon fuel to decarbonise.
• The scenario with decarbonisation by 2050 has a higher
investment in EEF technologies relative to the other scenarios (~
11%) which reflects the stringent emissions targets.
• The dry cargo fleet is the segment that invest the most, although, in
the decarbonisation by 2070 scenario, the container segment also
takes a significant share.
• As an illustrative example, the figures shows the trend over time of
annual amortized investment costs using an interest rate of 10%
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2015 2020 2025 2030 2035 2040 2045 2050 2055
(Billion $
)
Year
Business As Usual Decarbonisation by 2050 Decarbonisation by 2070
Produced by UMAS
Produced by UMAS
The switch to other fuel/engine is the main driver of
decarbonisation.
14
• The capital cost for the machinery includes the cost of the
engines and of the fuel storage system
• The machinery cumulative investment represents 72% of the
total investment costs for shipping (machinery plus EEF
technologies costs) for the BAU scenario, 79% for the
decarbonisation by 2050 scenario and 80% for
decarbonisation by 2070 scenario.
• In both decarbonisation scenarios, there is a significant switch
to ammonia used in an internal combustion engine; this reflects
the higher investment costs in these scenarios.
• The machinery for ammonia vessels is estimated to cost
approximately twice as much as the conventional 2-stroke
engine with HFO tank.
• As an illustrative example, the figures show the trend over
time of annual amortized investment costs using an interest
rate of 10%
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Decarbonisation by 2070
Produced by UMAS
Notes: This plot quantifies the investment cost of new machinery – either a new ship build or change of
machinery in the ship life – and EEF technologies. BAU scenario investment progressively increases
due to the insertion of new vessels and the EEF take-up, no retrofitted machinery is seen in this
scenario. Produced by UMAS
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2015 2020 2025 2030 2035 2040 2045 2050 2055
(Billion $
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Business As Usual Total Decarbonisation by 2050 Total
The fuel mix is dominated by ammonia
15
• The fuel selection is a key element as it influences the investment costs of the main machinery (engines/fuel
storage) as well as the investment cost of the supply infrastructure
• The decarbonisation scenarios are characterised by a large take up of ammonia, reaching 99% of the
total energy demand in 2050 in the decarbonisation by 2050 scenario, and 84% in the decarbonisation
by 2070 scenario
• The decarbonisation by 2050 scenario shows a drastic switch to ammonia from 2040 onwards, with almost
100% of the fleet using ammonia by 2050.
• In the competition amongst low carbon fuels, ammonia results a most viable due to the competitive relative
price and lower capex for fuel storage onboard.
• Electric ships represents a very small share of the international fleet, therefore, the electricity demand in
the fuel mix is negligible
Produced by UMAS
The investment cost of the supply infrastructure for the low-carbon
fuels (ammonia and methanol) depends on the production
methods Approach
The fuel mix from the decarbonisation scenarios is used as fuels demand to estimate the additional investment cost for the supply infrastructure
Ammonia e methanol are the two zero carbon fuels that are taking up in the decarbonisation scenarios with ammonia being the dominant fuel, therefore, the supply infrastructure cost estimates are mainly representative of the ammonia supply infrastructure
The BAU scenario does not have any uptake of zero carbon fuels, therefore, we use the investment cost of the supply of zero carbon fuels as proxy of the additional investment required relative to the BAU scenario. This calculation overestimates the additional investment for the supply infrastructure because we are not discounting for the cost needed to expand the conventional oil-based infrastructure in the BAU scenario
The capital costs of each component of the supply infrastructure are obtained from available literature (see details in slide 22). The unit costs are kept constant over time. Rather than assuming technological improvements and efficiencies of scale over time, when appropriated middle values indicating a long-term future cost was used as indicated in the literature. For example for the electrolyser a constant value of 472 USD/KW has been assumed.
The fuels demand in conjunction with the capital costs of the components are used to compute the annualised investment costs
16
The investment cost of the supply infrastructure is given for three potential configurations:
1. The production of the fuels is based entirely on electrolysis process from 2030 onwards
2. The production of the fuels is based entirely on the SMR+CCS process from 2030 onwards
3. The production of the fuels is based entirely on the SMR+CCS process in 2030 and gradually shift on electrolysis process over time until be entirely based on electrolysis in 2050
The estimates of the investment required of the three potential configurations would provide the scale of aggregate investment needed under each decarbonisation scenario
H2
compression
and storageSMR+CCS
The production of ammonia and synthetic methanol needs hydrogen as input source.
This study assumes that hydrogen can be produced with the electrolysis or through the
reforming of natural gas and carbon capture technology (SMR+CCS)
The supply infrastructure investigated in this study
Electrolysis
plantHaber-Bosh
Water
Treatment
Air
separation Refrigeration
and NH3
storage
Electrolysis
plant
MeOH
synthesis
Water
Treatment
Carbon
Capture
(DAC)
MeOH
storageH2
compression
and storage
SMR+CCS
Ammonia
Methanol
Produced by UMAS
A rapid increase of NH3 shipping demand will require additional
annual production capacity and several NH3 production plants
going online every year up to 2050
17
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num
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pla
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need
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eve
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ea
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mill
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tonn
es
of
Nh3
Decarbonisation by 2050
NH3 demand
number of platns needed every year
NH3 additional annual capacity
Produced by UMAS
Note: Assuming capacity plant of 7000tonnes of ammonia per day
0,000
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h3
Decarbonisation by 2070
NH3 demandnumber of platns needed every yearNH3 additional annual capacity
The capital investment needed for the supply infrastructure of
ammonia depends on the production methods and the specific fuel
production pathways.
18
The capital needed for SMR+CCS route appears lower than the one needed for the electrolyser
route. Note that operational costs are not included in this figure.
$-
$20.000
$40.000
$60.000
$80.000
$100.000
$120.000
$140.000
$160.000
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Decarbonisation by 2050
SMR_CCS route mix Electroliser route
$-
$20.000
$40.000
$60.000
$80.000
$100.000
$120.000
$140.000
$160.000
2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050
mill
ion
USD
Decarbonisation by 2070
SMR_CCS route mix Electroliser route
Electrolysis and the Haber-Bosch process are the largest
contributors to fuel supply capital cost
19
• Focusing on the production of
ammonia, the capital costs
associated with the electrolysis of
hydrogen and the Haber Bosh
process represent a significant share
when ammonia is produced from
electricity
• Whereas the cost associated with
the Haber-Bosch process represents
a significant share when ammonia is
produced from SMR+CCS, followed
by the reforming of hydrogen plant
with carbon capture storage
20
Description Values Note Key input assumptions
Ammonia plant production 6943 tpd
Methanol plant production 6164 tpd
Operational hours 7000 hr/year
Ammonia plant investment cost (Electrolysis) ~3.1 billion USD
Water Treatment 4%, Electrolysis 43%, Haber-Bosch 29%, H2 compression and
storage 11%, Air separation 8%, Refrigeration and NH3storage 6%
472 USD/KW Electroliser14.5 $2010/GJ/yr SMR+CCS
3540 USD/kg/NH3 h Haber-BoschReplacement costs for the electroliser are also considered and added to the capital
cost, so that: - for the plants built from 2026 to 2030, the
electrolyser stack needs to be replaced three times up to 2050,
- for the plant built from 2031 to 2040, the electrolyser needs to be replaced two times
up to 2050
Ammonia plant investment cost (SMR+CCS) ~2.6 billion USDSMR+CCS 27%, H2 compression and storage 15%, Air separation 11%, Refrigeration and
NH3storage 8%, Haber-Bosch 40%,
Operational period 30 years
Supply infrastructure assumptions
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