BANKING ON CHANGE FINANCING SHIPPING'S ENERGY TRANSITION - FUEL QUALITY TRENDS MARINE BIOFUELS LNG BUNKERING PANAMA UPDATE - KFW IPEX-BANK
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www.bunkerspot.com Volume 17 Number 6 December 2020/January 2021
BANKING ON
CHANGE
FINANCING SHIPPING’S
ENERGY TRANSITION
INSIDE:
FUEL QUALITY TRENDS
MARINE BIOFUELS
LNG BUNKERING
PANAMA UPDATE
shipping finance
Banking on change
Shipping’s energy transition will
certainly come with a very high price
tag. Sebastian Blum and Sebastian Fenk
of KfW IPEX-Bank talk to Lesley Bankes-
Hughes about financing the
decarbonisation journey
Image © Shutterstock.com
T
he I n te r n a t i o n a l Maritime University Maritime Advisory Services (UMAS) some way to support R&D on new fuels, there
Organization’s (IMO) initial green- and the Energy Transitions Commission on would still be a massive shortfall in terms of what
house gas (GHG) emissions behalf of the Global Maritime Forum (before is required for research and then, importantly,
reduction targets are well known and often the economic impact of the COVID-19 pan- the commercial scaling up of these products.
quoted. Its ambitions of cutting shipping’s demic on shipping began to be fully felt) put And, of course, this is only part of the story
carbon emissions by 40% by 2030 (from a price tag of $1-$1.4 trillion on halving ship- – once the new fuels are proven, a global – or
a 2008 baseline) and reducing the indus- ping’s CO2 emissions between 2030 and at the very least a comprehensive regional -
try’s greenhouse gas emissions (GHG) by 2050. If the full decarbonisation of ship- supply infrastructure has to be put in place,
at least 50% by 2050 will be challenging for ping by 2050 is the endgame, then the and shipowners then have to make the all-
the sector to realise, and the bar may be set investment required balloons to $1.9 trillion. important decisions about fleet renewal and
even higher when the IMO revisits these ini- Investors will need to have some very deep the fuels those newbuildings will consume.
tial targets (set out in 2018) in 2023. pockets indeed to meet this scale of financial At present, shipyard activity is at an historic
Many industry stakeholders have voiced commitment. There have already been some low as a result of the devastating impact of the
their frustrations over what they see as a proposals to bridge the ‘money gap’, such as a Coronavirus pandemic on global trade and
reluctance by the UN body to be more pro- $5 billion R&D fund put forward for discussion national economies, and banks will no doubt
active and agile in taking a lead on shipping’s at the IMO by a number of industry associa- be cautious in lending to shipping during what
energy transition and, as shown by Europe’s tions. However, progress on this at the recent is expected to be a volatile and uncertain post-
Green Deal, there is a groundswell of opinion meeting of MEPC 75 was not as substantive as pandemic recovery period. Furthermore,
which is pushing for unilateral action on GHG many had hoped for and the subject has been many well-known banking names took the
reductions in shipping in order to get initia- kicked down the road to be revisited in 2021. decision to exit shipping finance altogether –
tives moving and – hopefully – encourage the The European Commission has also or at least reduce their exposure to it – after
IMO to step up the pace on global regulation. called for the creation of an Ocean Fund to the global economic crisis of 2008. Towards
Since the IMO delivered its initial GHG tar- make shipping more efficient and reduce the end of 2019, Petrofin Bank Research, in
gets, the discussion around the new marine its carbon footprint, using revenue from its annual survey, highlighted that over $44 bil-
fuels and propulsion technologies that will be its proposed emissions trading system for lion in finance for shipping had been removed
required to get shipping to low or zero emis- shipping, which could come into effect as from banks’ portfolios over the course of
sions has intensified. Technological inno- early as 2022. Likewise, commodities giant that year. At that point, the cumulative total
vation and cross-sector collaboration on Trafigura has suggested the introduction of the top 40 banks’ lending to shipping
research and development will be needed to of a carbon levy of $250-$300 per tonne was $300.7 billion – the lowest figure since
turn words into actions, but scale of invest- of carbon dioxide equivalent on bunker Petrofin began its review of the global ship-
ment that will be required to move ship- fuels to make zero and low carbon fuels ping portfolio at the tipping point of 2008.
ping to ‘zero’ cannot be underestimated. more competitive with fossil-based fuels. However, just as there are owners who
A study published at the start of 2020 by While such market-based measures may go are proving to be first movers in shipping’s
Bunkerspot December 2020/January 2021 www.bunkerspot.com 33
shipping finance
energy transition, there are also banks owners and equipment suppliers, the bank being at a scale where you can say
who have already engaged in this discus- also uses export credit financing instruments. they are commercially viable,’ he says.
sion and who are increasingly willing to According to Blum, conversations about ‘How we look at this as a bank, then
extend loans for the construction of ships how the bank can support cleaner shipping the technology is not the main driver – it
running on alternative fuels or using pro- have been underway for a number of years. needs to be safe but the drivers are also
pulsion technologies, such as batteries. ‘Since 2012, we have had a green shipping the commercial aspects [of the tech-
Frankfurt-headquartered KfW IPEX-Bank working group inside the bank,’ he says. ‘We nology] and the credit ratings behind it.’
is a case in point. The bank is responsi- have tried to identify particular green ship- There are also other factors that will inform
ble for Export and Project finance business ping projects and also speak about this in a bank’s appetite for risk, and obviously
within the KfW Group and has a focus on conferences, [emphasising] that we want to this will include who is asking for the loan.
transport and infrastructure, having regard be part of this energy transition financing.’ ‘We have to look at who we are talk-
to environment and climate protection. He acknowledges that it has taken time for ing to and what are the risks we are taking.
In October this year, the bank signed a momentum to grow on such projects, but he For a big corporate with a big balance
€40 million loan agreement with the Grimaldi says that IMO 2020 and growing regulatory sheet, there is definitely a bit more “fire-
Group subsidiary, Finnlines, for the construc- pressure on shipping to reduce its GHG emis- power” to test different things – and that is
tion of a hybrid Ro-Ro vessel. The ship is sions profile have moved the discussions along. important to us,’ notes Sebastian Blum.
one of three to be built by China’s Nanjing ‘The first movers have been the big com-
Jinling Shipyard, and the vessels are slated panies because they can take the biggest
for delivery in 2021-2022, when they will risks,’ he says. He highlights the example of
operate on North and Baltic Sea routes. LNG-fuelled vessels, where market growth ini-
In addition to using lithium-ion batter- tially came with LNG retrofits for smaller con-
tainership companies which were financially
ies which enable zero-emission operation
supported through government subsidies.
whilst in port, the vessels also feature energy
However, it was only when the ‘big hitters’, such
saving technologies such as air lubrica-
as the cruise ship companies and container
tion systems and propeller-rudder systems.
liners, entered the fray that the LNG bunkering
Over a year before, in July 2019, Finland’s
infrastructure became more widely available.
Tallink Group and KfW IPEX-Bank also
Image © Gaby Gerster, KfW-Bankengruppe
‘This is something very basic, but it is impor-
signed a loan agreement to finance a
tant for us to analyse, and we are also look-
new €247 million gas-powered fast ferry,
ing for assurance on the risks involved in
MyStar, currently under construction at
using the different technologies,’ says Blum.
the Rauma Marine Construction yard
‘It is also difficult for us to evaluate the new
and scheduled for delivery in late 2021.
technology or the asset value of the new
Staying with the LNG-fuelled vessel sector,
vessel because there is not a real market
the bank has also structured the financing for
for it, and that is why we need the protec-
three AIDA Cruises’ vessels: the AIDANova, Sebastian Blum tion of the balance sheet of the owner or
the AIDACosma, due for delivery in 2021,
we can use export credit agency (ECA)
and a third cruise ship that will follow in 2023.
cover for these kinds of financing structures.
The bank has also provided loans towards
‘We are in active discussions with ship- ‘We need to assess what this asset
the financing of three of CMA CGM’s series
owners and also equipment suppliers and will be worth in 8-10 years, and it’s diffi-
of nine 23,000 TEU containerships – the they are now more interested. Two or three cult to know whether the technology here
CMA CGM Jacques Saadé, CMA Champs years ago, we had the first movers but is the winning one or whether at the end
Elysees and the CMA CGM Palais Royal. now the others are following up and we it doesn’t make the race – this is some-
As Sebastian Blum, Director Maritime are now in deep conversation with them.’ thing that we have to be very careful about.’
Industries, explains, KfW IPEX-Bank’s man- Sebastian Fenk, Director of Maritime Gauging asset value may become easier
date is to support the German and European Industries, agrees that some of the bank’s to calculate when a second-hand market for
export industries. ‘We have been active for shipping clients have been ‘ahead of the alternative fuelled (principally LNG-fuelled)
more than 40 years in shipping – first supporting curve’ in the energy transition and in terms of vessels begins to take shape, but Fenk says
German shipyards and financing their exports KfW IPEX-Bank’s approach to potential pro- that it is little early in the day for such a market.
and then more and more projects where jects, he notes that: ‘We will look at any kind ‘They are just coming to the water now
German or European equipment producers of technology that is feasible and that helps but you can see that there is a future order
are supplying to vessels built in Asia,’ he says. to reduce CO2 in maritime transportation.’ book so the uncertainty is less than before.
In terms of vessel segment financing, However, he highlights that some fuels, The fact that the fleet is growing with some
the bank is ‘very strong’ in cruise, support- such as LNG and LPG, are more advanced in of the LNG-fuelled ships entering oper-
ing projects in European shipyards across terms of technology and supply infrastructure. ation is a good sign for us as a bank.’
Finland, German, Norway, France and Methanol-fuelled vessels and sectors such While government and regional subsidies
Italy. Cruise ships account for over half of as ferries which are adopting electric/hybrid play a crucial role in nurturing innovation in
the bank’s shipping portfolio and the bal- propulsion are also viewed as being recep- alternative marine fuels and vessel technology
ance is distributed across other segments, tive to more mature alternative technologies. – often for many years – there comes a point
such as containerships, gas and oil tankers H o w e v e r, f u e l s s u c h a s a m m o - when a product or technology has to demon-
and Ro-Ro/RoPax ferries. In its lending to nia and hydrogen are still ‘far away from strate its commercial viability and ‘go it alone’.
34 www.bunkerspot.com Bunkerspot December 2020/January 2021
shipping finance
Blum agrees that as technologies mature existing bank and ask for a top up of the exist- GHG reduction strategy. Since then there have
and the sums begin to add up, then banks ing finance to do the retrofit,’ Blum explains. been more signatories to the Principles, and
will become less risk averse. ‘You can take the ‘So what we are trying to develop is they currently represent over $150 billion in
German renewable energy transition as a good a scheme where [an owner] might have loans to international shipping – more than
example,’ he suggests. ‘On the production financing with several other banks but there 30% of the global shipping finance portfolio.
side, at some point in time the energy becomes could be a solution where we wrap the ret- KfW IPEX-Bank was on the drafting com-
cheaper and more available and you then have rofit financing within the ECA cover of the mittee of the Principles and is also part of
the supply infrastructure; this is the way it goes export agency where the equipment comes the Global Maritime Forum. Sebastian Fenk
and at the end the bank can take the risk.’ from, such as Germany or Norway,’ he said. was involved at the drafting stage of the
While LNG was promoted as a fuel to Principles and is supportive of the initiative
achieve full compliance with the IMO’s 0.50% which, he says, will go a long way to improv-
global sulphur cap, introduced at the start ing transparency in the shipping sector’.
of 2020, the publication of the IMO’s initial However, the bank has not yet signed
GHG targets certainly altered some industry up to the Principles. Fenk explains that
stakeholders’ perception of the ‘clean’ cre- KfW banking group (the parent company
dentials of the fuel in that it only goes some of IPEX) is currently implementing a group
of the way to cutting CO2 emissions. LNG wide sustainable finance strategy. ‘Once
has been labelled by some commentators this has been agreed, we will evaluate how
as a ‘transitional’ or ‘bridging fuel’, although the Poseidon Principles fit in,’ he says.
LNG advocacy groups would point to the He highlights the importance of getting
development of synthetic LNG or bioLNG Asian investors and banks to sign up to the
Image © Gaby Gerster, KfW-Bankengruppe
growing number of sustainability initiatives and
as ways of further reducing its CO2 emis-
he also emphasises that sustainability should
sions and giving it longevity as a marine fuel.
be seen from a much broader perspective
Sebastian Fenk takes issue with the LNG
than CO2 emissions reduction, encompass-
naysayers. ‘I think we disagree that LNG
ing other key areas such as ship recycling.
runs the risk of becoming a stranded asset.
Shipowners have some difficult and expen-
We are of the opinion that LNG has a pos-
sive decisions ahead about fleet renewal in
itive effect on the CO2 issue in shipping.
Sebastian Fenk the context of IMO 2030 and 2050 objec-
‘There are some issues if you talk about
tives, and while those banks who are still in
methane slip – this needs to be controlled but it
the business of shipping finance are work-
can be – and therefore I think [LNG] is needed
ing out what their lending strategies will
and will play its part in the transition of the mar-
be in the new era of alternative fuels, other
itime industry. Especially if you consider that
dual fuel engines can be adapted to synthetic
‘I think we disagree sources of funding may also be available.
Blum acknowledges that some key play-
environmentally friendlier fuels in the future ’ that LNG runs the ers have left the shipping finance space and
This is one of the reasons why looking
he also points to the current very low vessel
ahead, KfW IPEX-Bank also sees opportu- risk of becoming a order book during this period of uncer-
nities in the retrofit market. While newbuilds
tainty and market volatility. Other inves-
can begin their lifecycles running on new stranded asset. We tors who have ‘a lot of liquidity and who
fuels, significant energy efficiencies can also
be achieved across the existing global fleet are of the opinion that are hungry for clean assets’ could poten-
tially enter the market, he suggests, while
through the installation of equipment such
as new optimised propellers or rotor sails.
LNG has a positive some companies are issuing green bonds
and those firms that are able to may go to
The bank has made a foray into the ret-
rofit market once before. In 2014, when
effect on the CO2 the capital markets. ‘For the rest it is a broad
spectrum of maybe debt funds,’ he says.
oil prices were high, it promoted a retro- issue in shipping’ ‘Above all, the important thing is adher-
fit financing scheme to facilitate vessel effi- ence to the regulations, so you know
ciency and, thereby, pare back on expensive what you are investing in and then
bunker costs. However, interest in retrofitting ‘We then try to find a structure within the bal- ever ybody can develop their plans.
waned following the massive oil price col- ance sheet of the client where in some cases ‘The dif ferent actors have to align
lapse in 2015, but Blum does think with new we don’t need the assets or the mortgage as and then decide – and then the dif-
IMO regulations, such as the vessel efficiency a security. This is something that has worked f e r e n t a c t o r s c a n t a k e a c t i o n .’
short-term measures agreed at November’s quite well in the past, usually with a repay-
me eting of the Ma r ine Env ironme nt ment period of 3-5 years and that we are pro-
Sebastian Blum,
Protection Committee (MEPC 75), the ret- posing to existing and new shipping clients.’ KfW IPEX-Bank
rofit market will become more buoyant. In June 2019, 11 major shipping banks
However, this optimism comes with a caveat. developed and launched the Poseidon
‘Normally, it is an older vessel to be retrofit- Sebastian Fenk,
Principles, which require financial institu-
KfW IPEX-Bank
ted which already has financing attached to tions to disclose the climate alignment of
it, so [the issue is] whether you can go to your their shipping portfolios with the IMO’s 2050 Web: www.kfw-ipex-bank.de
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