China looks to corner market for green ship construction [Gas in Transition]
China aims to corner more than half of the global market share for green ships powered by cleaner-burning fuels such as LNG and methanol by the end of next year, as Beijing looks to build on an early lead in construction of low-emission vessels to dominate the space – much like how Chinese companies have honed a competitive edge in electric vehicles.
China should “implement ship power innovation projects to improve the efficiency of traditional fuel and LNG marine engines, and steadily expand the market application scale of LNG marine engines”, according to the plan released by the Ministry of Industry and Information Technology and four other central government departments at the end of December.
Key enterprises have achieved significant results in reducing pollution and carbon emissions, with the comprehensive energy consumption per 10,000 yuan ($1,410) of output value decreasing by 13.5% from 2020 levels, according to the plan.
The new plan underlines the Chinese government’s view that decarbonising the shipping industry will be an essential part of the energy transition. China – which overtook Greece as the world’s largest maritime fleet owner last summer – plans to initially establish a green development system, carbon footprint management system, and green supply chain system for the shipbuilding industry by 2025. One specific goal is that by 2025, China’s “international market share of green power ships such as LNG and methanol has exceeded 50%.”
By the end of this decade China will have basically completed a green development system for the shipbuilding industry, with green ships that form a complete spectrum of supply capabilities and technology that has reached international advanced level.
In the future China will optimise and upgrade LNG-powered ships for large ocean-going ships, accelerate research and development of methane and ammonia-powered ships, and explore the development of ships with new types of power such as fuel cells.
China sizes up opportunities
The release of the action plan comes against the backdrop of two major trends in the shipping industry. The first is that Chinese shipyards now produce more than half of global shipping tonnage. Shipbuilding output expanded by 11.8% year/year to 42.32mn deadweight tonnes in 2023, representing 50.2% of the world’s total, according to data from China’s Ministry of Industry and Information Technology in mid-January.
New orders last year surged by 56.4% from 2022 to 71.2mn dwt, representing two-thirds of the global total, while holding orders reached 139.39mn dwt, an increase of 32% from a year ago and making up 55% of the global market share.
The second trend is that action is finally underway to decarbonise maritime transport. Last summer the International Maritime Organisation (IMO) unveiled a revised greenhouse gas (GHG) emissions strategy, with all members agreeing to reduce emissions from 2008 levels to net zero by or around 2050. The regulation covers almost all vessel types and both vessels to be built in the future, as well as retrofitted ships in service, which will require improvements in performance, carbon emissions and artificial intelligence.
Given that ships can remain in service for decades – as of early 2023 the average ship was more than 22 years old – many of the ships built today will probably still be in the fleet in 2050, when the IMO aims to achieve its target. As the shipping sector globally transitions into a phase of low-carbon and green development, demand for greener ships therefore is likely to boom over the next three decades – which explains why China is looking to steal a march on their construction.
“Low-carbon or even zero-carbon has become the future development trend of the shipbuilding industry,” Xing Wenhua, chairman of the Shanghai Society of Naval Architects and Marine Engineers, told Chinese state media recently.
Xing pointed to the large number of low-carbon or zero-carbon emission technologies and products from Chinese shipbuilders on display at Marintech China, a maritime conference and exhibition that was attended by hundreds of international and domestic marine firms in Shanghai in early December.
The trade show is widely regarded as a stage to showcase shipbuilders’ latest products, cutting-edge technologies and trends, according to Xing, who also chairs the exhibition’s Chinese organising committee.
Changing course on shipping emissions
But China’s action plan belies the long and challenging journey facing the maritime industry to decarbonise by mid-century. Maritime transport is a key enabler of global trade and contributes 2-3% of total GHG emissions – if shipping were a country, it would be in the world’s top 10 emitters and ahead of major economies such as Germany, the UK and Brazil.
Shipping accounted for one-tenth of global transport emissions last year, but this will grow to one-third by 2050, as road transport is electrified and decarbonised, according to modelling by the UN. The main source of emissions is the combustion of fossil fuels, mainly bunker fuel such as heavy fuel oil (HFO) – a cheap residual fuel left over after others, notably petrol and diesel, have been extracted from crude oil.
Nearly 80% of total fuel consumption by energy content comes from carbon-intense HFO, mainly in bulk carrier and container vessels. Marine diesel oil is more commonly used on general cargo and smaller vessels, and LNG tankers are often powered by LNG.
When combusted, bunker fuels release CO2, which makes up around 98% of the industry’s GHG emissions. They also release methane and nitrous oxide, which have a significantly higher global warming potential than CO2.
Alternative fuels, such as methanol, hydrogen and ammonia, are technologically immature and economically unviable for now. Large-scale adoption of low-carbon fuels is unlikely in the short term and companies face challenges related to technological uncertainty, lack of supporting port infrastructure and stranded asset risk.
Methane challenge for LNG
All of the above positions LNG as the transition fuel of choice for decarbonising shipping in the interim, but it is not ideal either. Methane emissions from shipping have significantly increased in recent years, mainly due to an increase in LNG consumption to power vessels.
A new ship built to sail on LNG instead of conventional bunkers can emit more GHG emissions on a life-cycle basis, depending on the engine technology and how the LNG is produced, according to analysis by the International Council on Clean Transportation released this month.
LNG tankers, mostly carriers, were the source of 82% of methane emissions from international shipping in 2021, well above the next largest categories of offshore vessels and RoPax ferries on 5% each, according to the research. Methane emissions were also highly concentrated along LNG trade routes, likely because they are traversed by LNG carriers that burn LNG as fuel.
The majority of methane emissions from LNG-powered vessels came from those that use low-pressure, dual-fuel, four-stroke engines, which leak the most unburned methane and have been most popular with LNG tankers. Installations of these engines are on the rise, as more than half of cruise ship capacity by gross tonnage to be built between 2023 and 2025 will run on LNG using these engines, according to S&P Global data from July 2023.
China will be central to improving the GHG emissions profile of LNG carriers given its global share of manufacturing then surged to 35% in 2022 compared with 7% in 2021. China’s shipbuilding enterprises undertook 55 orders for large-scale carriers in 2022, while the number of related manufacturers grew from more than 20 to more than 120.
China had not independently designed and built an LNG tanker before 2008, as South Korean and Japanese shipbuilders had dominated industry orders for such vessels for many years.
But this dominance ended when Hudong-Zhonghua Shipbuilding, a Shanghai-based subsidiary of China State Shipbuilding Corporation (CSSC), completed the maiden delivery of China’s first self-built LNG carrier in April 2008. The 147,000-m3 vessel, Dapeng Sun, had delivered 257 cargoes equivalent to 16.7mn t of LNG as of June 2023.
China advances shipbuilding prowess
The methane intensity means Chinese shipbuilders are exploring alternatives to LNG. At Marintech China last month Hudong-Zhonghua launched a design for a 16,000-teu containership powered by ammonia and showed off a 174,000-m3 LNG carrier equipped with a carbon capture system.
At the same event Jiangnan Shipyard, another CSSC subsidiary in Shanghai, unveiled a design for the world’s largest nuclear-powered containership with in-principle approval from certification agency DNV.
China’s shipbuilding industry has notched up milestones in recent months. On January 1 the country’s first domestically developed cruise ship set sail from Shanghai on its commercial maiden voyage around the East China Sea.
The 135,500 dwt-class Adora Magic City, built by CSSC’s Shanghai Waigaoqiao Shipbuilding unit, represents a landmark for China as it makes it the only country in the world to have mastered building an aircraft carrier, a large LNG tanker and now a large cruise ship.
China considers the three vessel types as having the so-called “three highs” – their construction is highly technical, highly difficult and highly value-added. They are seen as the “three crown jewels” of the Chinese shipbuilding industry.
The cruise liner’s debut came after Hudong-Zhonghua delivered the world’s largest LNG carrier for navigating inland waterways to southern gas utility Shenzhen Gas. The 80,000-m3 Dapeng Princess vessel will be able to journey down the Yangtze River and Pearl River basins even during the dry season.