More than 1000 ships need to be modified every year, but the existing shipyard capacity is seriously insufficient! As the global shipping industry moves towards a low-carbon future, ship engine retrofitting is becoming a key path for emission reduction transformation, and Chinese shipyards have taken the lead in this wave.
In its latest 2024 Engine Retrofit Report, Lloyd's Register (LR) pointed out that as regulatory requirements become increasingly stringent, ship owners are seeking to reduce carbon emissions as soon as possible, and retrofitting existing ships to adapt to alternative fuels has become a key focus area.
in 2023, the shipping industry has made some progress in the field of ship engine modification, including completing the first methanol dual fuel ship modification since the "Stena Germanica" passenger roll on/roll off ship in 2015. In November last year, Maersk Halifax, a 14000TEU container ship of Maersk, completed a methanol dual fuel conversion project at Xinya Shipbuilding in Zhoushan. This is the world's first large-scale container ship methanol dual fuel conversion project.
At the same time, the number of shipyards capable of dual fuel retrofitting continues to grow. LR estimated in its 2023 report that only 16 shipyards worldwide have the capability to handle alternative fuel retrofitting, mainly located in China and the Middle East. The newly announced engine modification projects from the end of 2023 to the beginning of 2024 have expanded this list, and all new projects are undertaken by Chinese shipyards.
Among them, Zhoushan Xinya Shipbuilding is expected to carry out the retrofitting of 11 Maersk container ships between 2025 and 2027; Qingdao Beihai Shipbuilding will launch the methanol dual fuel retrofit project for 8+2 container ships of France's CMA-CGM Group starting from this year. Last year, Shanghai COSCO Shipping Heavy Industries signed contracts with COSCO SHIPPING for the methanol dual fuel retrofitting of two 13800 TEU and two 20000 TEU existing container ships. In addition, it also signed a contract with Seaspan for the first batch of five 10000 TEU container ships for methanol dual fuel retrofitting.
In order to better promote future retrofitting projects, ship engine giant MAN Energy Solutions has listed 16 shipyards with dual fuel engine retrofitting capabilities, of which 11 were not included in LR's initial evaluation list.
According to LR's first report in 2023, global shipyards have the capacity to handle approximately 300 dual fuel retrofitting projects per year. MAN's newly identified 11 shipyards are expected to contribute an additional 110-165 retrofitting capacity per year, bringing the global dual fuel retrofitting project capacity to a maximum of 465 per year.
However, LR believes that the existing production capacity is still insufficient to meet the gap during peak periods, and it is expected that the annual modification demand during peak periods will exceed 1000 ships. To address the challenge of insufficient production capacity in shipyards, LR has proposed a new shipyard evaluation method in its latest report, aimed at helping shipowners select suitable retrofitting partners and ensure the smooth implementation of retrofitting projects.
Similar to LR's viewpoint, Seaspan, as the world's largest independent container ship owner, also believes that after experiencing a peak in container ship orders in the past few years, market activity in the next two to three years will mainly focus on retrofitting the existing fleet of approximately 6000 container ships.
Torsten Pedersen, Chief Operating Officer of Seaspan, said: 'Decarbonization can be driven through incentives or enforcement measures, but the ultimate determining factor is the financial condition of shipping companies. We believe that retrofitting will be a big part of the entire package, either with LNG already known and competitively priced, or methanol.'. At present, ammonia will mainly be used for new shipbuilding and may not occupy an important position in the market until the early 2030s."
Seaspan has already reached a cooperation agreement with German shipowner Hapag Lloyd last year to retrofit up to 60 container ships. The two companies have also signed a Conversion Commitment Agreement with MAN, which will deliver engine retrofit solutions for a total of 15+45 container ships. The MAN B&W S90 fuel oil engine on board will be retrofitted into a dual fuel ME-LGIM engine that can use green methanol. The first batch of 5 10000 TEU container ship retrofitting projects have been handed over to Shanghai COSCO Shipping Heavy Industries for implementation.
It is worth mentioning that the current dual fuel retrofitting is mainly focused on the methanol field, and LR's first report in 2023 did not consider LNG dual fuel retrofitting. Instead, it is expected that ship owners will choose methanol or ammonia fuel retrofitting when there is sufficient available fuel in the future. However, due to the uncertainty of fuel supply and pressure from emission regulations, the LNG dual fuel retrofit market may gradually take shape. As carbon costs rise and the supply of zero or near zero emission fuels remains limited, the high cost and technological complexity of LNG retrofitting may no longer be a major obstacle.
LR stated in its latest report that the demand for LNG dual fuel engine retrofitting will rise again in 2024. Last year, a total of 305 LNG dual fuel ships were ordered globally, accounting for about 14% of the total new ship orders, far exceeding methanol and ammonia dual fuel ships. Obviously, LNG has become a compliant solution for ship owners to meet emission reduction requirements in the short term.
Although LNG can help ship owners meet compliance requirements in the short term, LR warns that deeper emission reduction measures are still needed in the next decade. The methane emissions from LNG fuel, as well as the long-term supply of bio LNG and e-LNG, remain the main challenges faced by LNG as a transitional fuel. However, as the zero emission fuel supply chain is still in the early stages of development, LNG is currently considered the most feasible retrofitting option by most shipowners.
The LR report points out that the maturity of the supply chain is also an important factor in determining the speed of retrofitting projects. If there is insufficient coordination between engine manufacturers, fuel system suppliers, and shipyards, the delivery cycle of retrofit projects may exceed 18 months. At present, engine manufacturers are actively laying out to meet future market demand. Due to the shorter delivery cycle of retrofitting projects compared to new shipbuilding, it is expected that more retrofitting projects planned to be completed in 2026 and 2027 may be announced in 2025.