OCI NV, Amsterdam, said on March 5 it has signed two agreements to commercialize ammonia and methanol as shipping fuels by 2023/24. A producer of both products, OCI has signed the agreement with two major shipping companies and an engine manufacturer.
“Ammonia and methanol are the fuels of the future, and we are excited to continue to play a part in the transition to zero carbon in a cost-effective way through these partnerships,” said OCI CEO Ahmed El-Hoshy. “Our products are perfectly positioned to fuel the transition, and we believe the push towards low carbon fuels in the coming years will be met with the adoption of both methanol and ammonia as industry standard.
“We see this as starting with the adoption of grey/blue methanol and ammonia, and then shifting to green as production costs come down, customer appetites move towards green, and regulations continue to develop,” he continued.
“We are confident that, in addition to the exciting developments on new-builds, existing vessels can economically convert their engines to use our low-carbon products and help the industry meet its goals,” he said. “We are therefore pleased that we have signed these agreements with two of the world’s leading ship owners and the leading engine manufacturer, bringing together a comprehensive representation of the maritime value chain.
One Memorandum of Understanding (MOU) is with Man Energy Solutions (MAN) and Hartmann Gas Carriers Germany GmbH & Co (Hartmann). Under this agreement, OCI intends to charter ammonia vessels built, owned, and operated by Hartmann and its commercial arm, GasChem Services, that are operated using ammonia engines designed by MAN. The partners aim to propel the commercialization of ammonia-fueled vessels and accelerate the energy transition and decarbonization of the shipping industry.
In a separate MOU with MAN and Eastern Pacific Shipping (EPS), the partners will target retrofitting existing vessels from EPS’ tanker fleet to methanol and ammonia, new-build methanol and ammonia-fueled vessels to drive the commercialization of these fuels, and provide a path for the current conventional fuel vessel fleet to decarbonize. OCI said the technology to retrofit a vessel to accept methanol as a fuel is available today and the intent is for OCI to charter the first retrofitted methanol fueled vessel operated by EPS using already in-service MAN engines and technology in the next two years.
OCI said it plans to discuss the marine fuel opportunities for OCI further at an upcoming ESG Investor Day scheduled for March 8.
El-Hoshy told analysts at a company FY2020 earnings call on Feb. 25 that the company was advancing ammonia as a shipping fuel. He reminded that OCI is one of the largest producers and traders of ammonia globally, with ammonia plants and storage tanks located directly on the major shipping routes, and located in regions with “abundant and very cost-competitive renewable resources.”
The CEO said the company has made it “a top priority” to make ammonia an established fuel for shipping, and is also working on accelerating the transition to producing blue and green ammonia at its plants.
“Having potential end markets like ammonia as a shipping fuel is just one example, but you can see growth in terms of the future possibility using our locations for storage and infrastructure as very well located bunkering areas for shipping – an area that several years ago was not on the radar screen for OCI,” he said.
El-Hoshy told analysts the company was also going to be looking further and further downstream – for example, at the chemicals’ downstream markets – when it comes to products like ammonia and methanol.
OCI in February 2020 as part of its longstanding strategic review of its methanol business (GM Aug. 30, 2019; March 8, 2019), initiated a process with several interested parties that may result in a partial divestment or other structures for methanol, but had ruled out spin-off of the methanol business as a separate company (GM Feb. 28, 2020). The company in May opted to defer moving ahead with the process until the first half of 2021 to allow for an improved transaction environment for both OCI and interested parties (GM May 15, 2020)
At its earnings call last week, El-Hoshy told analysts the company continues to look at “any methanol value enhancing opportunities that make sense from a value perspective with regards to the company, taking into account our free cash flow profile and our leverage profile.
“The outlook for methanol is materially improved, so there’s an opportunity for us to continue to generate the free cash flow staying as is, as well as potentially some strategic alternatives,” said El-Hoshy.
However, he emphasized that the company would look “with a very discerning eye,” given the company’s methanol volume ramp-up – close to 50 percent in the fourth quarter of 2020 (GM Feb. 26, p. 31), and which is continuing to be a big volume driver here in 2021 for the group.
El-Hoshy said M&A also is always a possibility for the company to take advantage of.
“We are well-positioned with our global asset base. There’s still synergy potentials in the Middle East following the ADNOC-OCI joint venture that we have, as well as in very fragmented European nitrates, as well as the U.S. market,” he said.
“Some of that activity could happen with OCI on the nitrogen and methanol side or it could happen ‘outside of OCI,’” said the CEO. “We anticipate that happening because the ‘bid-ask’ tends to get smaller as the industry comes out of a trough and people have a bit more cash – and the market could continue to see consolidation, and should continue to see consolidation.”