Investing in marine assets is more akin to investing in infrastructure than in the commodity shipping business, and it can help reduce the overall carbon footprint of a portfolio, Purus Marine’s Julian Proctor says.
Julian Proctor wants to make one thing clear: he is not in the commodity shipping business. Shipping currently is facing headwinds from pandemic affected supply chains and a reluctance of investors to allocate capital to cyclical businesses.
But Purus Marine, where Proctor is the Chief Executive Officer, owns specialised marine infrastructure assets, which it operates and leases to companies and local governments.
“We’re not in the ‘shipping industry’ and I mention this to whoever will listen, because they often think of big deep sea container ships and big deep sea bulkers, but we don’t really do that,” Proctor says.
“What we’re doing is essentially infrastructure. We typically have long-term contracts with governments and large corporate users, and we operate in sectors that have high regulatory or customer barriers to entry.
“For example, we move millions of people a year in the Benelux by ferries. You can’t just turn up and do that,” he says.
We're not in the ‘shipping industry’ and I mention this to whoever will listen, because they often think of big deep sea container ships and big deep sea bulkers, but we don't really do that. What we're doing is essentially infrastructure. We typically have long-term contracts with governments and large corporate users, and we operate in sectors that have high regulatory or customer barriers to entry.
Purus Marine owns assets in four key niches: passenger mobility systems such as ferries; short-sea logistics equipment, including feeder containers; gas transport and storage infrastructure such as LNG tankers; and finally, it owns vessels to service and support offshore wind parks.
“We don’t own the turbines themselves; we own the equipment which services and helps the technicians maintain them. We own service operations vessels, essentially floating hotels, and crew transfer vessels that move engineers back and forth from the shore to the parks.
“We’re good at doing that, but we wouldn’t pretend to know about how to do that on land. That is not what we do,” Proctor says.
Across all four niches, Purus has a clear objective to reduce carbon emissions and ocean pollution. The company expects its fleet to achieve net zero-emissions within the 2030 decade.
The discussion to reduce emissions initially started simply with a focus on fuel efficiency, Proctor says, but in recent years clients have become increasingly concerned about their carbon footprint.
“Initially, there was a big focus on fuel efficiency, especially when the oil price spike happened,” he says. “So if you cast your mind back to when crude oil went through the roof in 2011, all of our customers really focused on how to reduce the amount of fuel that they consumed, because ultimately that’s one of their biggest expenses”.
“But that discussion has dramatically changed to include environmental considerations. It really became a big issue about five years ago. But it’s the other side of the same point, right? Because if you burn a lot of fuel you emit a lot of carbon and other pollutants,” he says.
Purus has been investing in technology to reduce the emissions of its marine assets and aims to operate a fleet of more than a hundred vessels. Currently it owns or operates 41 low and near zero-emission vessels. Electric ferries are a case in point. Purus owns the ferries that transport passengers in Rotterdam, a Dutch port city, and Antwerp.
But this model doesn’t work for every vessel. Large deep sea tankers can’t switch so easily to electric engines, he says.
“In a city like Rotterdam you can operate battery ferries, EV (electric vehicle) ferries, because your distances are short. But it doesn’t work in other places and you’d have to use hydrogen, for example,” he says.
“The fundamental challenge that you’re solving is that every time you move something there’s a certain amount of energy that is needed. If you push a small ball one metre, then you don’t need a lot of energy. But if you push a 10-tonne rock 10 kilometres, then you need a lot of energy.
“It’s the same issue in marine. There’s a lot of energy needed to move a deep-sea container ship and you have to use that energy rapidly, so battery storage is insufficient. With ferries, you’re moving maybe 100 people at a time for 45 minutes in inland waterways and so it works, but moving 20,000 TEU of container boxes for 45 days at 18 knots, that is different.
“It is about finding the right technology for the right circumstances. A hybrid electric model might work in certain parts of the wind industry, but it doesn’t work on big tankers,” Proctor says.
Electric engines might not yet be optimised for ocean-going container ships, but there are other measures that operators can take to reduce carbon emissions. Better design technologies, carbon capture devices and improved data can all help to reduce the footprint of a vessel.
But it is equally important to pay attention to what a vessel transports, Proctor says. Operating a highly efficient cargo ship that is optimised to transport coal doesn’t make much sense.
“If you look at commodities, then we are probably not going to carry crude oil or thermal coal, that doesn’t make any sense. I need to make sure that I’m carrying the commodities of the future,” he says.
“You have to make sure that you have the right assets and are not exposed to massive technology risks. There is no point in having stranded assets, so we’re very careful in how we select the commodities,” he says.
If you look at commodities, then we are probably not going to carry crude oil or thermal coal, that doesn't make any sense. I need to make sure that I'm carrying the commodities of the future
The transportation of gas is a good example. Although currently most gas transported is still natural gas, there is a clear case to be made that in the future some low carbon fuels will come in gas form.
But the transport of these gases requires specialised equipment and knowledge, Proctor says.
“If you take the movement of natural gas in Western Australia, then a lot of that uses cryogenic storage and so you’ve got incredibly high-end technology that costs a quarter of a billion dollars and requires the right skills to operate,” he says.
“In the future, you’re going to move from fossil-based LNG to probably some biomethane, synthetic LNG, but it is still the same process for cooling down/gassing up tanks and so you use the same equipment. You want to have a skill set here, because there’s a pathway to low carbon,” he says.
Proctor is pragmatic when it comes to questions about alignment to the United Nations sustainable development goals (SDGs). Rather than worrying about which part of the business is aligned with what goal – although they do that too – he points out the bigger picture.
“We’re decarbonising our customer supply chains. That’s what we do at the heart of our business,” he says. “So if you think about the SDGs, and we are highly aligned with many of the SDGs, but we don’t look at it as a check-the-box exercise. We built the business in a way to solve the problem of carbon emissions,” he says.
Reducing the carbon footprint of its fleet means constantly looking for new and innovative ways to propel vessels. Battery technology is probably the technology most often associated with clean energy, but Purus has been assessing a wide range of options, including rotor sails, air stream technology, and even kites.
But Proctor says these technologies face many challenges from the marine environment in which they need to operate.
“Often what you’ll find is that we will look at a technology and decide not to use it because we’re not comfortable,” he says.
“Right now, we’re looking at several carbon capture systems and we’re sending people on board to see how it actually works. It’s been used in industrial applications, in power stations, and the question is whether it can be used in marine.
“We’re very careful when we’re using new technologies, because we’re talking about long-life assets, so we have to make sure that they work in a wide range of operating conditions for long periods of time.
“So with kites we’re in the very early stages of development and we have a lot of work to do there,” he says.
Besides the viability of the technology itself, there are also a range of practical issues to deal with before any new technology can be implemented, including local regulations. For this reason, Proctor doesn’t expect to see any self-driving, electric ships enter the industry anytime soon.
“I think we’re still quite a way away from commercialisation and the realistic viability of automation, even in closed systems like ports or waterways, because you’ve got both customer take-up and domestic regulations which need to be considered,” he says. “Then you’ve got the insurance markets: who’s going to ensure those types of risks?
I think we're still quite a way away from commercialisation and the realistic viability of automation, even in closed systems like ports or waterways, because you've got both customer take-up and domestic regulations which need to be considered. Then you've got the insurance markets: who's going to ensure those types of risks?
“You’re more likely to see augmentation, especially in markets like Japan or Europe where the population is ageing. You’ve got an older crew and you might give them more data that leads to better visibility, because as they get older this data can help them make better informed decisions, more safely,” he says.
This is where the Internet of Things (IoT) comes into place. The availability of data from an increasing number of sensors and monitoring devices means crews can adjust their operations to achieve greater efficiencies.
“Everything that we have is very technology intensive and so we can collect data from our assets to understand the performance in different conditions,” he says. “We can see how an asset was used, where it was used and by whom. You can see if staff were using an asset at the wrong revolutions, in the wrong weather conditions, so you can learn from that,” Proctor says.
New Sectors – Seafood
As with new technologies, Purus is careful when examining any new niches to operate in as the company wants to make sure it understands the space thoroughly and has a competitive advantage.
Proctor currently has his eye on the seafood industry as a potential new area for Purus. Many marine vessels that service the fishing industry display similar infrastructure-like characteristics as its existing fleet and it involves long-term contracts.
“You’ve got carriers for live fish that transport them from where they may be grown and reared in offshore fish parks to their consumer markets. Then there are other assets from floating fish tanks to equipment needed to support the feed for these offshore fishery farms,” he says.
“Then there is the very large fishing equipment that actually harvests fish in the oceans, wild catch, so there’s a wide range of applications. We will look at both, but we’ll want to make sure that we do it in a clean, sustainable way,” he says.
Seafood is a high protein, low carbon food. It produces a lot less methane, a lot less CO2 per kilogram of fish, relative to red meat. Land-based meat is just about the worst that you can do
Proctor believes that as the world moves to a low-carbon economy, people are likely to eat more fish, since it is a lower carbon option compared to land-based meat. Asked if this move would not be impeded by the problem of overfishing, he answers that there are sustainable ways of increasing seafood in people’s diets.
“Seafood is a high protein, low carbon food. It produces a lot less methane, a lot less CO2 per kilogram of fish, relative to red meat. Meat is just about the worst that you can do,” he says.
“So by switching to fish and away from meat, you almost solve the problem overnight. At the very least, you would make a massive contribution.
“Now, you shouldn’t just eat halibut or cod, but eat a wide range of different types of fish. Every time you fish something, a large percentage of what is caught is thrown back overboard. So it’s all about having a wide range of fish and seafood types and fishing sustainably,” he says.
This article is sponsored by EnTGA. As such, the sponsor may suggest topics for consideration, but the Investment Innovation Institute [i3] will have final control over the content.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.