The need to decarbonise the shipping industry is urgent, but with clean fuels a long way off, CVCs are picking different strategies.
As international net zero regulations begin to bite, shipping companies are coming under increasing pressure to decarbonise. Finding alternatives to oil-derived fuels will be crucial, but investors in the industry have vastly different approaches for how to tackle the issue.
Danish shipping company AP Moller – Maersk has focused a large part of its corporate investment efforts on alternative fuels. It has set its sights on using methanol-based fuel, and in 2021 purchased eight ships with engines capable of running on it.
“Maersk’s position has been that methanol is a key fuel for the future,” says Alex Smout, investment director of Maersk Growth, its CVC arm. “The benefit is that it can be made through a number of different pathways. And it can be burnt in fairly similar combustion engines to the ones that we use today as well as in higher efficiency fuel cells of the future.”
“At Maersk Growth, a lot of our investment activity has been based on funding the delivery of that future with methanol. But at the same time our role is to look ahead to other fuels, pathways, and new technologies on the horizon such as batteries and nuclear.”
In July 2023, the CVC took part in the $10m series B funding round for WasteFuel, a US startup that tries to convert ordinary household waste into green methanol. It has also backed C1 Green Chemicals, a company with its own technology for producing green methanol which it says can be scaled in a cost-effective way.
Shipping accounts for around 3% of global greenhouse gas emissions and regulations on the sector are being tightened. From January this year, for example, all large ships in EU ports have been covered by the EU’s Emissions Trading System (ETS), which caps a company’s allowable carbon dioxide emissions. The International Maritime Organisation (IMO) is expected to release new recommendations for binding global regulations on shipping emissions in April next year.
Fueling choice
Finding an alternative shipping fuel is therefore crucial, but methanol is not the only candidate. Ammonia and hydrogen are also potential options. All three have their own drawbacks and benefits.
MOL Plus, the CVC arm of Mitsui O.S.K. Lines, a Japanese shipping company, has invested in Amogy, which is focused on developing renewable fuel out of ammonia. Neither Maersk Growth nor MOL Plus have invested in hydrogen fuel startups, but some innovation is being driven within the Belgian shipping company CMB, which began piloting hydrogen engines on small vessels in 2020 that were developed by its R&D branch, CMB.Tech.
Smout says Maersk Growth is focusing on methanol because it’s a nearer-term solution than ammonia.
“[Methanol-based maritime fuel] is maybe five years ahead of ammonia, in terms of getting it working on ships, if not more,” he says.
But he concedes that there is an “idealist” argument for using ammonia because its production doesn’t require carbon, so it is outside the carbon cycle. Also, capturing carbon to produce methanol is often expensive and requires intensive engineering, whereas ammonia is made out of the more abundant nitrogen and hydrogen elements, making production less restrictive.
At the same time, both MOL Plus and Maersk Growth are hedging their bets and investing in other power options, such as batteries. MOL Plus counts Fleetzero, a marine battery maker for hybridising ships, and Everimpact, which makes emissions tracking technology, among its portfolio companies.
Maersk Growth has invested in adjacent startups such as Altris, which is making a sodium-ion battery out of sustainable materials. It has also backed more experimental approaches , including Prometheus and Aircela, two US startups that are turning carbon dioxide captured from the atmosphere into fuel.
Fuel sceptics
Other shipping lines are more sceptical about the wisdom of investing in alternative fuel startups. IMC is a Singaporean international shipping company. Its CVC unit, IMC Ventures, also has a mandate to target decarbonisation startups, but Axel Tan, venture partner at the CVC, is focusing on investments that improve efficiency.
There is no clear winner in terms of fuel alternatives, says Tan, and it is not a problem that can be solved through startup investment.
“Fuels present a chicken and egg problem [for shipping companies]”
Axel Tan, IMC Ventures
“Fuels present a chicken and egg problem [for shipping companies],” Tan says. “If the infrastructure is not there [to supply ships] then there is no need to adopt the fuels.”
He thinks that the adoption of new fuels will come as a result of governments putting incentives in place and working closely with the corporates.
But efficiency is something startups can address. One of IMC Ventures’ portfolio companies is Sea Machine Robotics, a US startup making autonomous, AI-assisted systems that help vessels reduce fuel consumption. Another, Swat Mobility, uses AI to plan more efficient sailing routes.
Geert van de Wouw, a climate tech investor and former CEO of Shell Ventures, is also sceptical of any startup being able to develop an alternative maritime fuel. It will need large energy companies which have deep enough pockets.
“The amount of investment [that will be] needed to get a renewable fuel for maritime use is staggering. We’re talking multi-billion-dollar investments,” he says.
“There’s clearly a future for startups that are developing new pathways to achieving, for example, biomethane,” he says. “But eventually the capital that will have to be put into plants [to produce the fuels at scale] will not come from startups, because it’s too capital intensive. It will be covered by developers and energy companies.”
But Van de Wouw does admit there can be a role for “visionary” maritime companies that might “consider investing upstream in fuel production.”
Smout thinks this is precisely the advantage a CVC can bring.
“Most climate tech startups need well-aligned partners and supporters,” he says. “[So that they can] get infrastructure built, sign offtake agreements, get feedstock. There are a lot of partnerships required to build a successful climate company.”
“I think strategic investors that can help support the business are a necessary partner for them to grow and achieve scale.”
Smout also believes that it could pay off for Maersk to get there ahead of the competition.
“It’s always difficult to predict what’s going to happen over a 15-year horizon,” he says. “But I think it’s a transition all [shipping companies] will have to make, so if we can be a first mover in that space, hopefully we can build an advantage.”
