The Role of Ports as Energy Hubs and their Impact on Mediterranean Maritime Relations

Authors:

Alessandro Panaro

Head of Maritime & Energy Department, SRM

Anna Arianna Buonfanti

Maritime Economy Senior Researcher, SRM

Date: 30.11.2023

Reading: 10 min.

Download Télécharger

Introduction

Reducing greenhouse gas (GHG) emissions has become a great responsibility for society. According to Clarksons Research, shipping accounts for approximately 2.2% of global CO₂ emissions.

Decarbonization of maritime transport requires all stakeholders to collaborate including shippers, transport operators, freight forwarders, ports, vehicle makers, engine manufacturers, energy producers, policymakers etc. The Green Port model is becoming increasingly pervasive in the national and international context as the relationship between ports and the energy system and investments in sustainability become affirmed.

This role of ports as E-hubs is contributing to the transformation of the Mediterranean, which is becoming more and more central for both restoring processes and energy supplies, partly as a result of geopolitical tensions. This analysis will follow up with an examination of the impact of the role of ports as energy hub on the Mediterranean maritime traffics and of Italy’s emerging role as an energy bridge between the two shores.

Ports evolving as climate change requires a green transition process

The scale and severity of climate change is becoming increasingly clear, and it is demanding a complete transformation of the economy. This impacts the maritime sector widely. The first to be affected is the shipping industry, but also the port industry, cargo types moved, and basic port infrastructure are involved.

Ports can facilitate decarbonization, energy efficiency and energy transition in multiple ways. According to the concept of energy hubs, ports provide zero-and low-emission energy for port operations and users. Clarkson’s Research estimates that world shipping fleet emissions account for approximately 2.2% of global CO₂ emissions.

The International Maritime Organization (IMO) has set new targets to reduce shipping’s greenhouse gas emissions. Following the 80th session of the IMO’s Marine Environment Protection Committee (MEPC) in July 2023, the revised strategy to reduce GHG emissions from ships includes a commitment to reaching net-zero “by or around” 2050. The previous target was a 50% reduction in GHG emissions by 2050, compared to 2008 levels. The revised MEPC strategy also includes a number of checkpoints: reducing shipping’s GHG emissions by at least 20%, striving for 30%, by 2030; and by at least 70%, striving for 80%, by 2040. In both cases, the baseline comparison is 2008.

In addition, the IMO has a target of an uptake of zero or near-zero GHG emission technologies, fuels and/or energy sources, which are to represent at least 5%, striving for 10%, of the energy used by international shipping by 2030.

The sector, as of October 2023, is still characterized by the vast majority (94.1% in capacity terms) of vessels that are running on bunker fuel derived from crude oil. As encouraged by the European Union with its Fuel EU, fuel switch is one of the most important actions to reduce greenhouse gas emissions. The new rules will apply from 1 January 2025 to vessels above 5,000 gross tonnes calling at European ports: these represent 55% of all ships but account for 90% of CO₂ emissions from the maritime sector.

Shipowners are moving in this direction of fuel switch: 49.1% (start 2022: 33.8%, 2017: 10.9%) of the order book in tonnage terms is capable of using alternative fuels or propulsion. Of the total order book, 37.8% of tonnage is set to use LNG (893 units), 7.9% to use methanol (175 units), 1.9% to use LPG and 2.7% due to use other alternative fuels including hydrogen, ethane, biofuels.

Ports can provide important infrastructures and services that support the use of cleaner fuels and technologies on board ships.

The impact of fuel switch on ports will be mainly in changes to fueling stations and other facilities for alternative fuels (bunkering), such as liquefied natural gas (LNG) and, in the future, hydrogen, ammonia, methanol. The industry is also focusing on biofuels such as bio-methane, HVO (Hydrogen Vegetable Oil), or biodiesel. The main disadvantage is that the processes to produce biofuels may be more expensive than traditional ones. This will require additional investments in storage facilities and infrastructure.

This represents a challenge to ports as they have to decide in which fuel infrastructures to invest. This is an important choice because bunkering alternative fuels is a competitive advantage of ports that will be able to attract more ships and thus more traffic.

Figure 1. The choice of the alternative fuels in the orderbook as at October 2023

Source: SRM on Clarksons

The lower energy density of the alternative fuels may also require a much finer granularity of bunkering facilities, as ships will have to bunker more often. To this end, the supply of LNG, Green Hydrogen or Renewable Low Carbon Fuels, either of biological or synthetic origin, should be promoted in consistency and in a way compatible with the feedstock and renewable energy availability around the Mediterranean basin. This is necessary in order to the construction of a resilient and diversified maritime fuels production network, able to support the uptake of demand from sustainable shipping.

Ports can be key players in the energy transition, also by reducing emissions related to port operations.

Energy commodities represent a substantial part (on average 40%) of the traffic volumes of ports. They play a key role in the greening of the shipping market, as they are the location where a lot of fossil- and other energy sources (crude oil, gas, LNG, coal, biomass) are either consumed, stored, bunkered, transported or produced. European ports are among the largest chemical and production clusters in the world, and they host industries such as refineries, steel, iron, non-metallic minerals production and chemical industries that will need to cut greenhouse gas emissions by 45- 55% and improve energy efficiency with at least 32.5% by 2030.

Alongside the traditional fossil-fuelled energy plants, ports are increasingly hosting sustainable energy generation with wind and solar, biomass and waste-based energy production plants. Co-location of different energy sources power plants in large ports is common because it has several advantages, such as the abundance of cooling water for power plants and large-scale bulk transportation infrastructure available for coal and biomass.

A first step to reduce port emissions could be the cold ironing, also called shore-to-ship power (SSP). The term cold ironing means that a ship docked at the port is supplied with electricity – generated from renewable sources-from shore, and so can avoid running its engines or diesel generators to power on-board activities. Cold ironing has the benefit that local air pollution, noise and carbon emissions are reduced. For this reason, the shore-side power supply should be developed, particularly in ports situated close to densely populated areas.

Another development that will have a significative impact on the port’s energy system is the connection of offshore wind to the grid. According to a study by IRENA, offshore wind will grow in Europe from 23 GW in 2018 to 228 GW in 2030 and near 1 000 GW in 2050. The uptake of offshore wind will increase the need for wind turbine installation and service activities. Ports located near large offshore wind parks are natural locations for such an emerging installation and service industry. When located near offshore wind farms, ports can also act as natural conduits for the integration of offshore wind into the power system.

In addition, there are opportunities in green hydrogen. Produced by using renewably generated electricity to split water molecules into hydrogen and oxygen, green hydrogen is expected to play a key role in the global push to net-zero, particularly in decarbonizing hard-to-abate sectors. By locating an electrolyser close to large ports, industry would get access to large quantities of green hydrogen, directly produced from renewable power. Therefore, it is safe to assume that hydrogen can become economically competitive in ports sooner than in other locations.

Several port-related activities can be decarbonised via direct electrification. These include electric cranes and logistical vehicles for bunkering, logistics and freight handling, as well as powering offices and buildings, cold storage, and service vessels, such as pilot boats and tugboats, with renewable energy.

Ports are also greatly affected by electrification of other sectors, such as nearby industry and electric intermodal transport (road, river, rail and short distance sea). This means that a huge capacity expansion of the local electrical distribution infrastructure is necessary. This requires large investments and enough space to set up the necessary infrastructure.

Ports can play an important role in the development of capturing carbon dioxide and sequentially storing, called CCS. Its range of application includes major industries like cement, steel, hydrogen and ammonia – namely to all processes that release CO₂ in the atmosphere as a result of a combustion or an industrial process.

Switching from fossil fuels to renewable electricity will therefore reduce carbon emissions on a global scale.

The levers on which ports can act to facilitate the green transition are:

optimizing spatial planning by ensuring the availability of land and infrastructure to facilitate energy projects and at the same time (co)invest in sustainable alternative energy solutions to meet their own energy needs and to support the energy needs of customers, neighboring industry clusters and society at large; promoting intermodal connections between the port and inland through railways and inland waterways.
developing green charging (providing green incentives) to promote greener fuels in their port area when it comes to fuel selection.
promoting collaborations, partnerships and business consortia with a wide range of players involved in the transportation and energy ecosystem to align climate goals, forecast energy demand, and develop energy-related projects along the low/zero carbon fuel value chain.
setting specific rates and fees, onshore power supply, mobile power-to-ship services, and increased efficiency of port operations.

To address this challenge, ports should take the role of innovative energy communities by switching to modern Energy Hubs and providing to users a cleaner, more sustainable, and more efficient energy supply.

Decarbonizing shipping by 2050 will require large investments, with some estimates suggesting an additional $8 billion to $28 billion annually, to enable ships to decarbonize by this date. Fuel infrastructure investments are expected to surpass onboard investments. Scaling up fuel production, distribution and bunkering infrastructure to supply 100 per cent carbon-neutral fuels by 2050 will require annual investments of around $28 billion to $90 billion. Estimates suggest that full decarbonization could raise annual fuel costs by 70 to 100 per cent compared to current levels.

In the coming years, there will be a series of market impacts associated with emission reduction strategies, from lower speeds, increased scrapping and “multilevel” fleet renewal, i.e., covering mechanical, hydrodynamic, wind and operational parts as well as fuel. In the long term, the energy transition is expected to have implications for trade because commodity flows and thus trade patterns will change.

The decarbonization of shipping: potential impact on Mediterranean trades

There are several dimensions of maritime traffic in the Mediterranean, which can be considered on three levels:

As a ‘shipping east-west route’ directly connecting the Atlantic and Indian oceans, allowing shorter trade routes for Europe and Asia.
As a ‘shipping south-north route’ through which coastal countries develop their trade by short sea traffic, the busiest in UE.
As a ‘crossroads‘ of continents –European, Asian and African– whose trade is growing with globalization.

The vocation of the Mediterranean serving as a crossroads of continents has grown stronger over the past few years, for recent economic and geopolitical trends –such as the decoupling USA China and conflicts – that are boosting protectionist drives and nearshoring processes.

The Mediterranean is increasing its relevance. Despite covering only 1 per cent of the world’s seas, it accounts for 20% of global shipping traffic, 27% of container shipping line traffic and 30% of oil and gas flows (including pipelines). In the period January-September 2023, 19,285 ships utilised the Suez Canal, a 13% jump on 2022 with record-breaking revenues of 8 billion US dollars in 2022. The canal’s location also makes it a key hub for shipping oil and other hydrocarbons: it is the 4° global energy choke point. It enables the transfer of an estimated 7–10 per cent of the world’s oil and 8 per cent of LNG. Approximately 2.8 million barrels of crude oil and oil products passed through the Canal daily. Since the Gulf states are the most prominent users of the Suez Canal for the purpose of oil transport, the recent Israeli-Palestinian conflict could have a major impact on canal traffic.

The European Union is considerably dependent on energy imports. The decline in the status of Norwegian oil, alongside the fear of depending on Russian oil, has brought EU countries to aspire to an energy balance. In 2022 the European Union have overtaken both China and Japan as the top importer of LNG. Combined with its environmental awareness, this energy balance aim has led the EU to set ambitious targets for the use of renewable and less polluting energy sources, and it could decrease future oil imports through the Suez Canal. In this respect, one must note that a stronger market for gas at the expense of oil may lead to increased exports of liquid gas from the Arabian Gulf to EU countries, thereby balancing out the possible loss of Suez Canal transits from oil tankers.

Moreover, emergent energy sources countries are located on the Southern shore connected with the Black Sea and Africa. They have a potential of development and strong links with European economies through Mediterranean seaports. Pipeline and renewable energies on the Southern shore are a new generation of link, infrastructural and economic, between North Africa and Europe in the Mediterranean. It will surely change the map of transport and economy in the basin. A shift to more sustainable forms of energy will be essential on both sides of the Mediterranean to ensure a green mobility market and achieve the ambitious de-carbonisation targets set by the European Commission and most countries in the area.

Figure 2. Gas pipelines to Italy

Source: SRM on Italian Ministry of the Environment, 2023

In this whole, there is, of course, also maritime trade between the Mediterranean countries and the rest of the world to be considered, but more importantly, trade takes place between the entire EU and the countries of Asia and the Middle East through the Suez Canal.

In conclusion, the complexity and changes in energy trade have taken place at a very fast velocity at a global scale. The energy flows from one part of the world to another has grown, and at the same time, commercial patterns have considerably changed and extended; they remain complex and dynamic. This will have a major impact on ports that handle mostly energy-related cargo and are the entry point for pipelines.

This topic concerns Italy closely because much of the critical infrastructures for our country in the wider Mediterranean is linked to energy supply.

The geographical position of the peninsula places it at the center of a complex network of submarine gas pipelines which are essential for Italian and European energy diversification, especially to decrease dependence on Russian export. Italy is a gateway for new energy flows from North Africa and the Caspian area to Europe, accounting for 74% of gas imports in January-July 2023 via pipeline. Italy receives on its coasts the Transmed and the Green Stream from North Africa and the Trans-Adriatic Pipeline (TAP) which carries Azeri gas passing through Turkey. Added to these is the Eastmed project, which will connect Italy with the gas fields discovered by ENI in the Eastern Mediterranean (Zhor and Nour in Egypt, Leviathan in Israel and Calypso in Cyprus).

The Mediterranean Sea transport trade has its own peculiarities, where many asymmetries are still making differences between territories, and where many considerable changes in the near future will draw new maps of relations between growing economies. Long-term strategies cannot avoid these realities and have to play with the political uncertainties that remain in the region.

Conclusions

The strict targets set by national and international bodies to limit carbon emissions in the maritime sector have encouraged the development of cleaner production systems in port areas, resulting in the emergence of modern Energy Hubs that supply the port facilities and ships by multiple energy carriers. However, optimizing the design and operational strategies of these energy hubs and identifying the most effective pathways for decarbonization in specific cases can be challenging. The development of Energy Hubs systems in port areas is driven by a combination of environmental, economic, regulatory, and technological factors. By embracing these energy systems, ports can contribute to global sustainability goals and benefits of cleaner, more reliable, and cost-effective energy supply.

Recommendations

What developments can we expect for the green transition of shipping in the Mediterranean Sea?

fewer ships carrying fossil fuels.
on a transitional basis, growth of seaborne gas trade.
increase in trade in renewable energy equipment and parts, thus increased project cargo traffic.
escalating energy flows via pipeline from North Africa.

In this way, ports as e-hubs can play a “pivotal role” in supporting decarbonisation goals of countries and regions, international logistics and strategic import-export value chains, such as those for green hydrogen and its derivatives.

Italy, thanks to its geographical positioning, could become the European gateway for imports of renewable energy from South Mediterranean countries, supporting in this way the strengthening of the cooperation between the basin’s shores.

Bibliography

CLARKSONS RESEARCH, Shipping Intelligence Network Database
COUNCIL OF THE EU (2023, 25 July) Press release, Fuel EU maritime initiative: Council adopts new law to decarbonise the maritime sector
DNV GL (2020, July), Ports: Green gateways to Europe
IRENA (2019, October), Future of wind. Deployment, investment, technology, grid integration and socio-economic aspects
SRM (various years), Italian Maritime Economy. Annual Report
SRM (2022), MED & Italian Energy Report
UNCTAD (2023), Review of maritime transport

Any use or reproduction of the information presented on these articles should be accompanied by a citation of CETMO and IEMed’s intellectual property rights.