Did the World Bank just condemn LNG?

The United States has a long-standing love affair with natural gas, with fossil fuels acting as the backbone of the the country’s electricity production mix. At the same time, nearly half of American households use fuel for heating. With the transition from fossil fuels to renewables booming in many states, natural gas is serving as a bridge that will make the transition smoother and less choppy.

America’s leading civil rights activists are among those who vehemently oppose a brutal abandonment of natural gas, which puts them on a collision course with progressive Democrats and environmentalists who have been push for an outright ban on fracking.

On the other side of the spectrum, there is no shortage of environmentalists and climate advocates in dozens of cities – especially in liberal-leaning states such as Washington, California and Massachusetts – who have been pushing for gas. natural is completely prohibited. in homes and businesses. Meanwhile, lawmakers in New York City, California have taken a strong stand against greenhouse gas emissions.

And now the shipping industry faces a similar conundrum.

The World Bank has just published a recommendation to avoid LNG bunkering, claiming that hydrogen and ammonia offer the best long-term solutions as the shipping industry continues to adopt increasingly stringent measures to decarbonize.

But the international financier’s recommendation faces a lot of backlash from industry representatives who say the industry cannot afford to wait for a perfect solution to tackle climate change. Instead, the shipping industry is driving the adoption of technologies that can boost LNG’s carbon credentials.

Shipping is one of the biggest consumers of oil, accounting for ~ 7% of global oil consumption.

Cheapest marine fuel

In its report, the World Bank provides policy makers with an overview of its perspective for the industry, arguing that the industry must move away from fossil-based bunker fuels and shift to zero-carbon bunker fuels in order to to reduce and ultimately eliminate its impact on the climate. Related: Why Natural Gas Won’t Be Replaced Anytime Soon

In addition to its overview of the issues, the World Bank presented a report entitled “The role of LNG in the transition to low and zero carbon maritime transport“The report indicates that LNG is likely to play only a limited role in decarbonizing the maritime sector, even in the short term, and recommends countries to avoid adopting public policies that support LNG as a bunker fuel due to the risk of methane emissions and other highly damaging GCG emissions.

In a twin report, titled “The potential of zero carbon bunker fuels in developing countries“The World Bank identifies ammonia and hydrogen as the most promising carbon-free bunker fuels for the shipping industry.

However, panelists at the opening of Singapore Maritime Week representing ship owners, charterers and builders are opposed to this line of thinking and see the switch to LNG as a plausible interim solution to a low carbon transition. that can happen as soon as possible.

BHP CEO Vandita Pant counter-argued that the shipping industry risks becoming “behind” if it does not use LNG at least as an interim measure and instead waits “a perfect solution to come”.

But the truth is, the main reason shipping tycoons don’t want to give up on LNG is simply because it’s the cheapest fuel available.

According to data from the Accredited International Registrar and the DNV Classification Society, over the past seven years, Henry Hub natural gas has consistently ranked at or near the low of marine fuel prices based on calorific value.

Henry Hub natural gas sells for $ 5.60 / MMbtu, the lowest among the six ranked fuels. Adding a liquefaction cost of $ 4 / MMBtu means it remains considerably cheaper than low sulfur marine gasoline (MGO), changing hands at $ 12.11 / MMBtu.

Source: Det Norske Veritas Group (DNV)

Favorable hydrogen economy

That said, a wide availability of cheap green hydrogen could quickly render natural gas / LNG useless.

Green hydrogen is hydrogen produced by electrolysis of water using 100% renewable energy, making it a zero carbon source.

Unfortunately, less than one percent of global hydrogen production is green, with the vast majority derived from the reforming of natural gas. In fact, 95% of the hydrogen produced in the United States is currently manufactured by reforming natural gas, that is to say gray hydrogen. Related: Energy Sector Is Having Exploding Quarter

The big problem here is that producing large amounts of green hydrogen requires massive amounts of renewable energy; For example, the UK Government Independent Committee on Climate Change estimates the country would need 30 times its current offshore wind capacity to produce enough green hydrogen to replace all of the UK’s gas boilers.

But that could be about to change.

Last year, the world’s green hydrogen leaders teamed up with an ambitious goal of increasing the production of green hydrogen by 50 times over the next six years, which could lead to a significant drop in hydrogen prices. green.

the Green Hydrogen Catapult Initiative is an original idea of ​​the founding partners of the Saudi clean energy group ACWA Power, the Australian project developer CWP Renewables, the European energy giants Iberdrola and Ørsted, the Chinese wind turbine manufacturer Envision, the Italian gas group Snam and from Yara, Norwegian fertilizer producer.

The companies hope to generate 25 GW of green hydrogen production by 2026, a scale that could drastically reduce hydrogen costs to less than $ 2 / kg, making the fuel source competitive with fossil fuels in electricity production. The companies hope to generate 25 GW of green hydrogen production by 2026, a scale that could drastically reduce hydrogen costs to less than $ 2 / kg, making the fuel source competitive with fossil fuels in electricity production.

If successful, the days of natural gas as the preferred clean energy bridge in the global marine and US power generation mix could be numbered.

By Alex Kimani for Oil Octobers

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