The eighth episode of our podcast is a conversation with Professor Andrei Belyi, CEO of consulting energy firm Balesene and Adjunct Professor in Law and Policy at the University of Eastern Finland.

The interview, led by SGS INSPIRE Business Development Manager Claire Couet, covered the expected use of renewable and low-carbon fuels to reduce greenhouse gas emissions from the shipping sector.

Welcome everyone to episode #8 – already - of our INSPIRE-ing energy talks. It's the first time that we discuss specifically the topic of waterborne transport, so I'm quite excited I must say. Today we are going to assess the challenges ahead, but also explore the pathways that we see for phasing out marine oil in waterborne transport. And we're going to do that in the company of energy expert Andrei Belyi. Andrei, good morning to you. Welcome to our podcast. We are honored to have you with us.

Thank you very much. Thank you for having me during this discussion and it's a pleasure.

Andrei, you have many hats. You are the CEO of your own energy consulting business based in Estonia. You are also a part-time professor at the University of Eastern Finland. And maybe there's more. Could you tell us about your experience and your expertise?

Thank you very much, Claire. Indeed, I'm happy to introduce myself. Yes, I have my own boutique consulting firm focusing mostly on energy policy and energy markets and also at the same time, I have an adjunct professorship, so it's not really part time professorship, but it's an adjunct professorship, so it's in an honorary position offered by the university of Eastern Finland, specifically by the Centre for Climate Change, Energy and Environmental law.

Excellent. Well, let's just start right away with the topic of today's discussion. We want to discuss phasing out heavy fuels and marine diesel. Phasing them out is a necessary step to limit the pressure of maritime transport on the environment. For that reason, in 2020, the IMO (International Maritime Organisation) set a reduction of sulfur content of fuel oil from 3.5% to 0.5%. So, Andrei explain us, what are the options on the table to make that reduction happen. And what has been the impact of this regulation so far according to you?

Thank you for the very good question. Well, I would say that IMO regulations do not necessarily lead to marine diesel phase out but stimulate innovation in this sector. And for example, the very low sulfur fuel oil is already mentioned in various IMO documents, and also on the websites of bunkering pricing. So we saw the development of dual fuel engines with the marine gasoil and cryogenic fuels that store gas at -163° degrees celsius. And cryogenic fuels technically remove all dirty substances and contribute to this de-sulphurization. Then in this context, we may foresee development of LNG from biomethane or synthetic fuels, for example, this week there was an announcement in Germany that Tree Energy Solutions (TES), a German company, announced to supply Kline with synthetic LNG obviously, in future that is actually a prospective project. Currently, we also observe innovation in shipping that includes fuel cells. These are electrochemical devices that help generating energy without mechanical moving parts and that basically are an ideal solution for hydrogen and for ammonia. In addition to that, there are companies that are planning installing batteries with interruptible power supply that will also help reducing fuel consumption and reducing emissions during the ships journey.

OK. That's interesting to look at the different types of options, fuel cells being an option for various transport areas. So interesting! Now if we look at prices, so in any energy transition, the topic of prices in terms of accessing alternative fuels is always a big topic. So, what is the price range for different alternative fuel options? If you look at the cheapest and the most expensive?

Well, so far we have only some few options that are operating in bunkering. For instance, we have already on the markets very low sulfur fuel oils that are definitely more expensive than conventional marine diesel. There are also discrepancies that are regional so that we have to bear in mind. But if we have examples, for example, a conventional A4380 would be priced this week at around 470 USD per tonne in the US, whereas the very low sulfur fuel oil are some 100 USD more expensive. In Rotterdam, for instance, the discrepancy is less big, so the difference between the very low sulfur for fuel oil is around 70 USD compared to the conventional A 4 380. Then when we are moving towards liquified fuels such as cryogenic fuels, they become more expensive and, for example in Rotterdam currently, the price is about 800 USD per metric tonne, but on the other side of the Atlantic in the United States, the price is around five 530 USD, which is way more affordable, which actually next to the level of pricing of the very low Sulphur oil, for example.

OK, so that definitely plays a role in in the access to these fuels. And Andrei, if we zoom now on the EU area, that is also an area that you know quite well, there are two new pieces of legislation. One is called fuel EU Maritime, it will apply as of 1st of January 2025 and its goal is to simply increase the use of renewable and low carbon fuels in the shipping sector. And then there is another tool, which is the EU ETS, also as of 2025, shipping companies will have to use ETS allowances to cover 40% of the emissions that they reported in 2024, so this year. So Andrei, in your view, which fuels will benefit the most from this enlarged ETS and this fuel maritime regulation. And also if you can make a link - because we're now recording in June after the elections happened - so if you can make a link with the recent EU elections results, and see how these results can possibly impact these frameworks, or the implementation of these frameworks?

It might be still probably premature to try predicting impacts on specific fields. We definitely envisage an increase of renewable gases, particularly biomethane used in shipping, so bio-LNG is actually a renewable fuel that can directly contribute to this XX It's very easy because we have already infrastructure for it, and you have dual fuel engines that exist in Europe, where ships are running with LNG already so they can either purchase directly bio-LNG or they can purchase green certificates and that's definitely something that will move forward. However, there are also risks that we have to consider. For instance, we remember in 2022 when gas prices spiked, all the LNG bunkers were empty and companies who operate shippers who operate on those fuels they switched directly to the marine diesel or to the marine gasoil because using LNG was too expensive and up to now there is information that 90% of Maersk dual engines ships use marine oil, they don't use LNG, then in this context, where do we insert the bio-LNG?

Then, there is another issue that actually the new cycle of the European Commission will have to deal with, it is the internal market for bio-methane, which doesn't exist. And it doesn't exist because Member States don't recognise at the EU level, the guarantees of origins for bio-methane. And there is an economic and regulatory logic behind it. For example, if a Member State provides subsidies to bio-methane, the Member state would like to get the bio-methane at the national level to ensure the implementation of various European Union targets that are applicable at the Member States, so like this is the Member States can be in line with the EU regulation. And if bio-methane flows away from the Member State, then in this case, another Member State will benefit from the targets and the one who invested in bio-methane, provided public subsidies, will not and will be probably even in failure in front of the European Commission's views. Yeah, it might even face infringement procedures, so automatically there is no interest to let bio-methane out and that definitely leads us to an important dilemma: we don't have an internal market for bio-methane and that certainly limits the availability of the cheapest options that can be traded for the maritime sector as well. So I think it's a major regulatory issue that the new cycle will have to address and we don't know exactly how we will address it, but we already see that discussions are ongoing.

Also the new cycle will have to face a question: “what is actually the most suitable price for carbon for emission trading scheme”. At the beginning, during let's say the early start of the Green Deal, the consensus or the “quasi consensus” was that more elevated carbon price would be helpful for the transition. But then we realized that this is not necessarily the case, because higher carbon price also implies bigger costs for energy intensive industries that include producers of equipment for wind turbines, for shipping, for solar and so on, and it stimulates the inflation, which is harmful for the energy transition. At the same time, we also see that the reforms, how they were designed last year, they rather tend to stimulate the price of carbon but to what extent the new cycle, the new Commission will reform the allowances in a way that the lesser availability of allowances stimulates the price or not, that we will be seeing. What is actually very important to understand is that ETS is based on allowances, it is not based on commodity market style of supply-demand, so whatever the regulator will allow to be on the market will be traded. And therefore, the more we restrict the number of allowances, the lesser are possibilities to trade, hence the price would tend to increase. But a market mechanism comes after. For example, in case industries closed down, reduced their industrial output or decided to relocate somewhere else, then the carbon price, the demand for ETS allowances declines and then the carbon price declines as well. And that's actually the difficulty of the whole carbon market and how the new cycle envisages to reform it, is a big question.

Yes, yes, absolutely. That's the issue of current leakage and from what we hear, the new cycle will focus also very much on industrial policy and what you just said has a direct implication on industrial policy. So very, very interesting. And if you had to apply this to the shipping and maritime sector, how do you see them, you know, for the first time playing in this game, if I may say?

It's a challenge because it will certainly stimulate costs, but in the extent that the carbon price is not too elevated, probably they will just assume the cost and will increase the prices for services that will not be very much noticeable by the consumers. And then at the end of the day, no major innovation would go, without major ambitions. That probably would be the most realistic scenario under the current carbon price.

Thank you. That's very helpful. Andrei, another question for you: if we zoom on ammonia, we see that using the ammonia currently produced as an alternative marine fuel may not help the maritime industry to really reduce its greenhouse gas emissions, so instead, the sector maybe has to look at blue and green ammonia but that is not produced in big quantity today. So how do you evaluate, how do you analyse the development of these specific markets? So blue and green ammonia?

Thank you. It is indeed a very important topic because ammonia so far is very much discussed in the shipping innovation, but we are talking about grey ammonia, not about low carbon/ carbon neutral ammonia. Then, if you're talking about the blue ammonia, yeah, certainly cost analysis show that actually, it will be a cheaper solution than the green ammonia. However, there are a lot of questions regarding the blue ammonia. First of all, we are still in the process of analyzing how Carbon Capture Storage (CCS) will work for natural gas. Second, when we are talking about all of these blue ammonia, blue hydrogen we are talking about CCS which will be applicable before any new gas is produced whatever it is, ammonia, hydrogen or other synthetic fuels are produced, but we're not taking into account all emissions that may occur before gas is supplied to the place where the processes and the processing happens. So it means that all the gas flaring, all the methane leakages are not included into the process.

Another question will be whether this will be included, and the European Commission seems to have taken a tough stance on reducing methane emissions. It is unclear still how to do with gas flaring, which occurs usually beyond the European Union borders or how to control it, how to favor the cleaner supplier. But anyhow, we have to understand that blue ammonia or blue hydrogen are not necessarily carbon neutral, if you look at it in a broader perspective, and it's up to regulators and to industries to find a right balance between the actual situation with this industry and what can be done to solve the situation.

Regarding the green ammonia, it would obviously rely on green hydrogen production and it means that one needs to use electrolysis, which consumes electricity to the decompose water and to extract hydrogen and later to generate ammonia out of it. So we remember that a couple of years ago there were a lot of optimistic assumptions regarding green hydrogen. And some analysts provided figures like 4€/5€ per kilo gramme of hydrogen as basic production cost. Now we see that actually the range of costs is rather between 8€/11€ and it definitely discourages off-takers to consider these options because once they see that costs are still going up, they are hesitant to conclude binding agreements to purchase hydrogen. And so far, only 5% of all EU targets of the RE-power you plan are committed by the consumers, which is a very low level. What atually has to be added here when we are talking about the maritime sector, is the storage cost, which can go up to another 20% of costs that have to be added and there are still a lot of unclarities regarding these developments. There are some optimism that we observe because some new electrolyzer producers offer solutions or “think about solutions” that would reduce costs and increase efficiency, but by some 30%. For example, the so-called hot temperature electrolysers apparently will provide a more effective solution at lower cost. But so far these innovations are at the technological levels that prevent private investors to go in, because private investors want to invest in something that is already at an elevated market readiness, and they don't want to invest in something which is being in the research and testing process.

But I have a question for you here, Andrei, sorry for interrupting, but this is interesting. What do you think about the European Hydrogen Bank? Is that helping at all to reassure, you know, potential investors?

It definitely created certain movements and the figures were actually higher than expected and that is definitely a credit to the Hydrogen bank, but at the same time the number of legally binding commitments remain very low and one of the reasons is that the costs are high and therefore the question is again about the new cycle, whether the new cycle will be committed to further support hydrogen producers, electrolyzer producers to reduce the cost in order to have something realistic in front of us. What is actually very important to bear in mind is that so far we are talking about electricity generated electrolyzer based hydrogen. But electricity can be generated from many different sources. According to the Hydrogen Europe, the association of Hydrogen Producers of the European Union, the average carbon intensity of electrolyzer driven hydrogen is 0,37 kilogramme per kWh which is the same level as lignite. That means that even this option does not remove the carbon footprint unless we see a very important increase in deployment of renewable energy sources or nuclear right, those electricity sources that do not emit greenhouse gases and then basically leads us to a dilemma because we cannot consider green hydrogen as green hydrogen before the upscale of the renewable and carbon neutral electricity sources.

Yes, there was a delegated act that was very much discussed on this topic, but we're not going to go into the details. I want to focus now with you on the topic of infrastructure, which is also crucial, obviously. So how do you see the lack, maybe of potential infrastructure to allow the “maritime/shipping/ the water borne transport industry” let's say, to access these new fuels.

We observed a lot of developments in LNG bunkering. We observed a lot of changes at the level of harbors. And the question remains if the European Union is successful in energy transition, whether do we over invest into LNG infrastructure? And even if the LNG infrastructure is there, would it be an oversupply of infrastructure for bio-LNG for example? Would biomethane be sufficient in filling up this infrastructure? What is actually most interesting and that's again a hint to the new cycle of the European Commission is that there is a lack of skills for harbors and for shipping companies to operate with newer fuels. Because once we are talking about fuel cells, once we are talking about ammonia, we are moving to a totally different the world and very often engineers don't even compare with the conventional maritime sector, because there's going to be a different world. But harbors and the shipping companies don't have sufficient skills available to ensure a smooth transition towards these new fuels, and that's again the question of how to create necessary instruments/ necessary incentives to help the industry to have these skills. Because they are not skilled developers, there are other institutions, usually public institutions, that develop skills, and that's the question how to match between each other.

Yes, yes, this is a topic where we often see this issue of lacking the green skills. Let's say everything that is related to the green transition, we still don't have an economy that is prepared to deal with this also the aspects of safety and all that is related. So thanks for pointing that out. That's very interesting. And maybe now as a last question to you Andrei, and to summarize a little bit everything that we've touched upon, and there was a lot this morning: how do you see this transition to cleaner fuels, I will call it like that, for the water bones transport sector happening. And how do you see the other regions of the world looking, into this investing into this?

Yes, a good question. And I would say if you say it has to be my personal take, I would put it as follow. When we have a small child, we don't know yet whether he or she will become a lawyer, a scientist, a musician or whatever. And here it's a little bit the same. Transition is still at quite early stage to say how it will end up, how to develop according to different stimulation mechanisms, different market scenarios. What is important is to bear in mind that there is a so-called “willingness to pay”, that is not always happening taken into account in the policy debates. Because if prices and the costs are too elevated or let's say like this if the costs are to elevated, leading to the prices that are elevated, we will have the shipping industry at all? Probably some private companies will prefer to close down. Another solution is that shipping industry can still pay fines, pass the costs to the consumers without creating a transition. So there are a lot of questions and at the same time, we have to bear in mind that technological breakthrough can come where we don't expect it. It is how we all observed the development of the transition over the last years. At some point there are some technologies that come in and they offer interesting solutions and then it may become quite an interesting game. So I would say, I would make this comparison to a small child and you have to see whether it will become a lawyer, the sciences or a musician at a later stage. So far we have to help the child to grow up.

And we can only hope for the best, of course. Andrei, and a final final note on how do you see the rest of the world? Because in the end, Europe is a bit this regulatory superpower where you know, especially in the last five years, there was so much legislation pushing for the green transition in general. So how do you see the rest of the world looking at us? And maybe you know saying that we're crazy or saying that “we don't want to do this”. What would be your take on how we are perceived in this process?

It's again a very good question. We have to look at the data that is available for latest years. We can see that the demand for fossil fuels beyond the OECD per the last 10 years, from 2013 to 2023, has increased by nearly 30%. So. While the OECD part of the world, the most advanced economies, the post-industrial economies, saw a decline in carbon intensity, not only a decline in carbon intensity, but also a decoupling between the economic growth and the emissions growth, the rest of the world is going on the path of increasing fossil fuel consumption. Will this trend be changed, will be different the next 10 years? I would doubt that. I think the trend will continue and certainly we will have to take into account this trend. At the same time, I would give like a small pill of hope. Globally, the carbon intensity has declined from something like 1.04 to 0.4 from 2000 to 2018-2019. I haven't come up yet with thee more updated figures, but what we can see that despite the increase of fossil fuel demand in the emerging economies, this demand is very different from what, let's say, the Western world industrialization was. And therefore, the carbon intensity, even with the fossil fuel demand increase, is very different from what it was in the last century. Even at the end of the last century. And having said that. We may see a further reduction of the global carbon intensity, with all the efforts which are now being produced. And the conclusion is that probably we should not put the cart ahead of the horse and expect a transition where it cannot happen, rather we should focus further on the intensities, because that's exactly what the climate models are about, about probabilities related to the intensities of the representative carbon emission pathways. Right? And that's probably something that have to bear in mind also for the maritime sector.

Well, thank you so much for those “provoking” thoughts. You know, thank you for helping us to see this challenge differently than maybe we were used to, to discussing it and seeing it. That was really helpful. I will say goodbye to you now. Thanks again for your insights. Thanks for your time. I would like to thank everybody out there for listening. Our next podcast will be on the transport decarbonization policies in Latin America and we will especially discuss the case of Brazil. Thanks everyone. Thanks, Andre. See you soon. Bye bye. Speaker 2 - Andrei Belyi Thank you very much. Speaker 1- Claire Couet Welcome everyone to episode #8 – already - of our INSPIRE-ing energy talks. It's the first time that we discuss specifically the topic of waterborne transport, so I'm quite excited I must say. Today we are going to assess the challenges ahead, but also explore the pathways that we see for phasing out marine oil in waterborne transport. And we're going to do that in the company of energy expert Andrei Belyi. Andrei, good morning to you. Welcome to our podcast. We are honored to have you with us.

Thank you very much. Thank you for having me during this discussion and it's a pleasure.