Shunichiro Shimamura | Decarbonizing the maritime industry with MOL Switch
In this episode we learn from Shunichiro Shimamura, COO at MOL Switch, the venture arm of Mitsui OSK lines, a major global shipping company. In 2021, MOL announced their goal to get to net zero by 2030.
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This article is part of the series: Hydrogen Innovators Podcast
Transcript
[00:00:00.48] [Music Playing]
[00:00:02.42] Shunichiro Shimamura: MOL is a huge shipping company. Their company emits about 12 million tons of CO2 every year these days, which is huge because this amount is as big as the emission of Puerto Rico. The freight cost per voyage become, like 140% to 50% of what is available today. We as MOL can't take all of this, so we have to share it with stakeholders.
[00:00:30.63] [Music Playing]
[00:00:42.04] Karen Baert: Welcome to the Hydrogen Innovators Podcast. This is a podcast series is produced by the Stanford Hydrogen Initiative, where we spotlight bold innovators in hydrogen, all the way across academia and industry. You can find our podcast series, Hydrogen Innovators, on Spotify and on Apple Podcasts.
[00:01:01.03] I'm Karen Baert, your host for today. I'm an intrapreneur and Stanford MBA graduate. And today, I'm really, really excited because we have the privilege to welcome Shunichiro Shimamura as guest. Shunichiro, welcome to the Stanford Hydrogen Innovators Podcast.
[00:01:18.43] Shunichiro Shimamura: Thank you for having me.
[00:01:19.81] Karen Baert: So Shunichiro Shimamura is a president and CEO at MOL Switch. MOL Switch is a relatively newly established investment vehicle, and it's a 100% subsidiary of Mitsui OSK lines, which is a major Japanese shipping company. Shunichiro has been working with MOL for, I believe, about 20 years now. And half of that time, he spent focusing on business development within the energy sector.
[00:01:54.27] Before he joined Switch, he worked on several projects around next-generation fuels, and specifically hydrogen and its derivatives like ammonia and methanol. So Shunichiro has a wealth of experience in clean fuels as it relates to the maritime industry. I'm really excited to learn from him today.
[00:02:14.56] Now, full disclaimer-- my work as an entrepreneur is in the ammonia industry, and, hence, I have a particularly strong background and interest in that space. However, our mission with the hydrogen podcast is to increase access to high-quality information about hydrogen and its derivatives and to show the full perspective. And so I aim to bring in as unbiased as possible perspective related to this topic.
[00:02:37.24] So Shunichiro, let's get started. Mitsui OSK lines is a major Japanese shipping company with a very strong global presence, I believe. And the company is operating about 900 ships today. Tell us a bit more about the company.
[00:02:51.77] Shunichiro Shimamura: Yeah, exactly. Well, Mitsui OSK lines, or we call it a MOL or mole sometimes-- that's one of the largest shipping companies in the world, operating a variety of cargo ships, up to 900 plus ships today, which is we are definitely maybe number two or three. I'm not too sure about that, but that we are still one of the largest.
[00:03:14.03] And while we span out our container shipping businesses, which is quite popular in here, but now this is in operation as ONE, Ocean Network Express, which is a joint venture formed by our fellow shipping companies in Japan. And MOL, still, after the spout spinning out, MOL still carries many kinds of commodities like iron ore, grain, oil, gas, and chemicals, and so on. And we carry cars as well.
[00:03:45.40] And now, although MOL was established in 1884 in Japan-- so we are just like a dinosaur-- our ships are going everywhere. And in many cases, our trade doesn't involve a Japanese port. So we are operating literally globally. And we are just catching up to the trend of the world trades.
[00:04:09.03] Karen Baert: Now the shipping industry represents, I believe, around 3% of global greenhouse gas emissions. That's pretty substantial. MOL is laser focused on reducing its carbon footprint. I believe your ambitious goals are to reach net zero by 2050. And that includes scope 1, 2, and 3 for MOL and all its subsidiaries. And that's a very ambitious goal. Tell us more about what drives this goal?
[00:04:36.81] Shunichiro Shimamura: Definitely. Well, first of all, I have to emphasize that shipping is the most eco-friendly mode of transport when it comes to the emission per ton mile, which is an indicator to show how much cargo and how far you ship that your cargo. The transporting tons of goods on a massive vessel is still very efficient from an emission point of view, in comparison to the trucking or airlines. And still carrying goods, the shipping is going to be your first choice If you care about the emission.
[00:05:14.67] But as a company-- as I said, MOL is a huge shipping company-- their company emits about 12 million tons of CO2 every year these days, which is huge because this amount is as big as the emission of, like Puerto Rico. And this has to be reduced, of course. And in the long-term, we are targeting to get it eliminated solely.
[00:05:41.31] And in 2021, like three years ago, MOL announced the plan to go with net zero emission in 2050. It was a little earlier than many of the other large corporates, and at that time there was less requirement from stakeholders. Even IMO, International Maritime Organization, said to cut the emission by 50% in 2050 at that time, which was now revised to-- I think it was last year, they revised it to net zero emission target in 2050.
[00:06:16.29] And what drives this? is the great question. And yes, in today's world, there's nothing to force us to reach net zero immediately. And we are doing OK in our business as of yet. But in future, tours like 2050, there will be more pressure to do that. That's obvious.
[00:06:35.23] And that pressure is going to be coming from customers, investors and regulatory frameworks as well. And like many institutional investors, they are already selective and removing the companies from their portfolio, if the companies of decarbonization initiatives are not sufficient. So [INAUDIBLE] is not an exception, and we have to work on that.
[00:07:03.64] Karen Baert: Wow, I find it so impressive that when the IMO, a few years ago, said, the goal is to reduce 50% of emissions by 2050, that you basically said, well, we're going to do 100% And I like to think that the fact that you have a head start there, that will also play to your advantage on the long term.
[00:07:22.78] Now, to get to net zero by 2050 is not an easy task, right? Looking at MOL's goals, it looks like you kind of foresee a range of efforts to get there. It includes efficiency improvements. It also includes some carbon removal, direct carbon removal. But then it seems like the majority of the emission reductions really come from clean fuels. I believe you share a mix of itself, like some biofuel, some LNG and methanol. And it seems like the bulk is coming from a mix of ammonia and hydrogen. Can you talk us a little bit to what that strategy looks like, and how you distinguish between these different types of clean fuels?
[00:08:03.25] Shunichiro Shimamura: Yeah. So first of all, there are some options available in the market, or there will be some options in the future, like biofuels, LNG and methanol, ammonia-- Hydrogen is a little bit challenging, and I will perhaps explain it a little bit later, but there are still a lot of options-- and biofuels-- the next and most ideal solution for ship owners and ship operators, if it is available.
[00:08:33.56] And because there are biofuels, or biodiesels, I would say, it's in dropping fuel, dropping solutions. And you don't really have to do anything on your ship. So it's an idea for the ship owners. And biofuel, As you know, it's in a liquid state under the atmospheric temperature and pressure. So easy to handle, no toxic.
[00:08:55.56] But the problem is the limited supply of the feedstock, the biomass or biogas, and other sectors like aviation are also eyeing on it. And as you may-- like, emerging aviation sectors, but they have deeper pockets, much deeper pockets than ours. So I don't think there are maritime sectors can compete in the market against the aviation or some of the other sectors on the biofuels by much. So we decided not to rely much on the biofuel solutions, although if there is a need of availability, it's nice to have.
[00:09:32.10] And LNG and methanol, well, they still need a biogenic CO2 resources or captured CO2 by direct air capture to be deemed as in carbon-neutral fuels, as they have carbon in it naturally. And this is one of the biggest challenges for these two, because the resources of biogenic CO2 is, again, limited.
[00:09:52.86] And the direct air capture technology-- I know a lot of people are working very hard. And I would like to support them as much as I can, but it's still too expensive in today's market. The good news is-- good news for LNG is that it has in global supply chain and infrastructures, for power sectors and critical sectors in many places in the world. And the propulsion systems for the vessel have been in place actually for more than 50 years today, and it's now 100% proven because of that.
[00:10:27.03] And when it comes methanol, methanol propulsion is also there but not as matured as LNG propulsion systems because the methanol propulsion systems are today employed by only methanol carriers, and there's not too many methanol carriers on water in the world. And infrastructure availability is also limited in comparison to LNG, as methanol is so far used only by chemical and petrochemical industries.
[00:10:57.28] And ammonia, it pretty much known as toxic in its gaseous state in atmospheric temperature and pressure. And you will need to chill it down to minus 33 degrees Celsius to liquefy it and keep it liquefied. So it's a little bit tricky, nothing too easy to handle, better world.
[00:11:22.10] However, what makes ammonia distinguished amongst the others is that it doesn't have a carbon in it. And ammonia is a combination of nitrogen, hydrogen. So they have no carbon. So you don't worry about biogenic CO2 or direct air capture or anything. And these things are obviously the big extra on the cast. So I believe ammonia will be the cheapest and most affordable options. Plus there is no carbon emissions, at least from the fuel tank to prepare. So that's the beauty of ammonia.
[00:12:02.25] Karen Baert: Interesting. That's a really good overview. It's almost like, OK, biofuels would be the easy option, drop-in solution. But there's going to be a lot of competition, and there's ultimately limited supply, right? Methanol is also relatively easy from a engine modification perspective. But again, there's a limited supply of biogenic CO2 and inevitably also maybe a higher willingness to pay for that biogenic CO2 in other industries like aviation.
[00:12:30.06] And so it's almost like, well, then ammonia is kind of the only option out there. There might be some challenges with the molecule as well, and it's not as easy to use it in a shipping engine, and we'll get to that later. But it has less of these challenges around limited supply and cost of the fuel.
[00:12:48.17] Great. Well, so a lot needs to happen obviously, to enable a clean fuel supply chain, right? You need to produce the clean fuel, and then you need to set up the right fueling and bunkering infrastructure. And then you need these clean fuel-ready ships. And a lot of people often talk about the chicken and the egg problem.
[00:13:07.20] Something that I really admire about MOL as a group is that you recognize the chicken and the egg problem, yet it doesn't hold you back. You don't treat it as an excuse. You try to break the chicken and the egg by making progress in each of these areas. Can you speak a little bit to your efforts and the different pieces of the value chain?
[00:13:28.68] Shunichiro Shimamura: Yeah. Well, the simple answer is we will eventually need them. And we have to buy it as a user And although we all need the clean fuels for decarbonization of the global maritime, their supply chains are incomplete or doesn't exist at all. This is a scary situation for a buyer or user of these fuels-- that's us-- and because we have no idea where can where we can take them eventually, how much we can take in one port, and how much we have to pay for them.
[00:14:04.74] One idea to hedge these risks is to take part in building the supply chain by ourselves, and we are already in motion. MOL, as a shipping company, has been quite active in FSRU projects already. FSRU, by the way, stands for Floating Storage and Regasification Unit. And this can perform most of the functions required as a receiving terminal of gas, such as LNG that can be emitted at the end of the day and ammonia, which is also gas.
[00:14:36.93] There is no ammonia FSRU today, of course. But MOL started to study it three years ago in 2021 and completed the design in the last year. So we are ready to start building that period wherever the demand is.
[00:14:52.78] And one of the other thing is the investment in production and technology. Through the initiatives I am a part of, the MOL is already a shareholder, one of the Blue Ammonia Productions Project, in the United States, which is in Louisiana, and also MOL Switch that I'm now serving as an CEO.
[00:15:13.54] And MOL Switch is a corporate venture capital arm to invest in and support startups in this space, the clean tech space. It's been a bit of challenging to raise the equity in the capital market these days for the startup companies, but we have already made seven investments in the last 12 months, which is not a bad pace, as we are still a CVC. So there we are pretty much supporting the startups, or the anyone who wants to tackle the climate change pretty much.
[00:15:48.39] Karen Baert: Great. This is how you contribute to each of the pieces of the value chain, right? It seems like you're definitely contributing to the fueling infrastructure on the production side. You're really not the one producing, but you're a stakeholder in projects, which helps these projects advance, right? Because it also gives them more security on the offtake side. And then on top of that, with MOL Switch here investing in different startups who will hopefully help reduce the cost of clean fuels going forward. Is that a fair summary?
[00:16:18.09] Shunichiro Shimamura: Yeah.
[00:16:18.71] Karen Baert: Great. Now, let's talk a little bit about these fuels and the willingness to pay for these fuels because the elephant in the room is that these clean fuels will be more expensive than the fuel we use today, right? Today is, by much-- unfortunately, today you use maritime fuel oil. And average gas carrier uses around 20 to 25 kilograms of fuel for a day.
[00:16:45.60] Let's say if you were to switch to ammonia as a fuel, it has a lower energy density, right. So you would need double of that, 40 to 50 tons a day. How much do you pay for your fuel today? And how much do you think you will have to pay, or will you be willing to pay for that ammonia fuel?
[00:17:01.60] Shunichiro Shimamura: That's a [INAUDIBLE] question. Or actually, it's $1 million question. And when it comes to the heating value, the ammonia and methanol are about half of the marine diesel or gas oil. So that's the start. Now, if the price pattern is the same for ammonia or methanol as a fuel oil today, the fuel costs for boilers will be double, as you rightly pointed out.
[00:17:27.66] And actually, the fuel in today's market is approximately $700 or $800 per ton. And blue ammonia methanol, so they are looking at a similar range of the price level, the [NON-ENGLISH]. So it's not a bad assumption. But under this assumption, your fuel costs probably will be doubled, which is a big business.
[00:17:53.25] Of course, the fuel cost takes approximately 50% of the entire voyage cost. The rest 50% will be like, seafarers, the lubricant oil, the spare parts, et cetera. But the fuel oil is the biggest portion of that cost component. And the fuel is expensive. And on top of that, you will need extra space for clean fuels. Because it has lower density, you will need bigger tent spaces for having fuel stored on board the vessel.
[00:18:28.30] And again, your ship is built for carrying cargo. And any space available on board shall be utilized for carrying cargo, and you will have to carry it just to bring your clean fuel. So that's another headache.
[00:18:46.57] So in this case, my assumption-- the freight cost per voyage will become like, 140% to 50% of what is available today. And this is just my rough estimate, so no variance please. Anyways, this is not a small extra. We as MOL can't take all of this, so we have to share it with stakeholders, which is obviously customers and perhaps end users of that product.
[00:19:18.32] So you buy goods on Amazon, or you will buy a sneaker from Nike, and you will eventually have to bear the cost of the clean fuel on the maritime part that you can't even imagine that. But that's the goal of their whole industry at the end of the day. But I know it takes time.
[00:19:42.45] So until that happens, that every single stakeholders or beneficiaries take a small extra cost for burning green fuels. Until that time, their regulatory frameworks will be super helpful to incentives. Or maybe the penalty plus incentive mechanisms, they will be so good to accelerate or drive these fuel transition happen.
[00:20:11.29] Karen Baert: Interesting. Well, that's a very interesting and helpful analysis. So you're saying your estimate is probably the overall cost will increase by 40% to 50% And obviously, there's a challenge of will the whole supply chain be able to absorb that premium? And how will it be divided across the different actors in the supply chain?
[00:20:32.12] Now, you mentioned regulations. Obviously, regulations can help, right? If there's subsidies for you to decarbonize, and on the other side, if there's penalties for those who don't decarbonize, I guess that makes the delta smaller. Does the IMO-- so the International Maritime Organization-- or do other policies or incentives help you today? And how?
[00:20:54.62] Shunichiro Shimamura: The International Maritime is quite unique, and it's not realistic to make an emission belong to one country, like the aviation sectors. Aviation is also international activities, but it flies between two countries. So you can just split the emission like 50/50 into two countries.
[00:21:13.53] But the ships are just doing a milgram. And it stops by the many ports in many countries. So it's almost impossible to fairly split the the emission into those countries. So in today's world, it doesn't belong to any single country. And that is the characteristics of the International Maritime. And that is another problem actually.
[00:21:40.02] So the initiatives led by international organization is one of the few ways to make it happen. All the legislations to be made by a country or international body will be based on the IMO's guidelines, so that's so meaningful.
[00:21:57.42] Particularly some initiatives in like EU or European waters imposing the penalties and incentives-- in my opinion, that's very helpful. And I hope [INAUDIBLE] accelerate the things and then pushing all the shipowners and cargo owners to accelerate their activities on the decarbonization of the international market.
[00:22:19.95] Karen Baert: Interesting. So IMO, from a global perspective. And then in Europe, you see some of the most advanced incentives, and you're hoping that will extend across other geographies.
[00:22:30.33] Shunichiro Shimamura: Yes.
[00:22:31.09] Karen Baert: Great. Let's talk a little bit about engines, because you mentioned in the beginning, well, some of the fuels are very easy to use with current engines. They're drop in fuels. Others are harder. Now, when using ammonia as a fuel, there's different ways of doing it. One thing is, sure, you can't use your current engine, but there is alternatives, right?
[00:22:50.72] You can use direct ammonia engines, so basically burning ammonia. You could crack ammonia into hydrogen and then combust the hydrogen, or you could potentially even use fuel cells. So an electric drivetrain. How do you compare these different options? And which solution is most attractive to MOL and why?
[00:23:08.07] Shunichiro Shimamura: Yeah. Well, there are several options in the market. And then a lot of things are happening in their technology development first. And I don't want to deny any of these options in today or maybe in future. But from MOLs standpoint, MOL operates a lot of ships, and many of them, vast majority of our fleets, are massive ships. Massive ships means it has a length more than like, 200 meters. Sometimes it's more than 300 meters, so you can't even imagine how big it is.
[00:23:42.62] And then these bigs are going very far, like from United States Gulf course down to China, or sometimes from Brazil to Japan, which means from the opposite side of the globe to the opposite. So at the end of the day, we need a scale of that propulsion system, let's say. And we need a propulsion system that's big enough to move our huge ships and make it reach to the destinations on the other side of the globe and, as you can imagine, the massive ships, huge ships, or huge gas law.
[00:24:18.25] So having said that, the international combustion system looks the most mature and reliable system so far in the larger scale, I would say. But we are, of course-- as I said, the open for new technologies like fuel cell, as long as they are technically de-risks enough and commercially competitive.
[00:24:36.97] Karen Baert: Very helpful. When you talk about decarbonization, I'm always amazed by-- while you acknowledge the challenges, there's a very strong commitment and direction that, despite the challenges, we need to decarbonize. And you have a plan in place to be able to make that happen. Now, to the point of the challenges, what are you most worried about in the transition? What keeps you up at night?
[00:24:59.86] Shunichiro Shimamura: Well, that's obviously our investment position. So we've been so active in the investment, as I discussed. And although I believe every single one of the decision was right, and still I'm always anxious about what if there is no other offtakers coming up on our blue ammonia projects? And what if a startup in a portfolio can't survive until there is a strong demand in the market?
[00:25:29.56] As you can imagine, well, everybody speaks about hydrogen, ammonia, methanol, but there is no real demand in today's market. And people are believing that is going to happen in a couple of years. But it's been pushed back by a couple of years already. So when it's going to happen is a huge question.
[00:25:52.21] And I really want to startups in my portfolio, at least, maybe of startups working very hard to survive until it happens. So that's the great challenge. And then what I can do is just to give a small support, like developing the project together with them or maybe following on the investment better. The main thing I can do is just crossing fingers. So I really hope they're going to be OK.
[00:26:19.55] Karen Baert: Yeah, yeah, I totally hear you. And this thing of it's going to happen in a couple of years-- if every year-- that's still a couple of years-- then that obviously comes with a lot of challenges, especially for young companies, technologies that still need to mature, and the ecosystem around them.
[00:26:35.84] Shunichiro, I'd love to move towards a few more leadership, personal journey questions. Before you join MOL Switch, you were general manager of business development at Mitsui OSK Lines. Tell us a bit more about your professional journey within the maritime industry. And what led you to ultimately focus on energy and then the decarbonization world?
[00:26:58.28] Shunichiro Shimamura: Well, what is interesting about MOL was, 10 years ago, there was no business development position in the entire organization. And all the businesses were focused on the traditional shipping activities. And we had some real estate activities. Maybe, I would say, more than 95% were traditional shipping.
[00:27:20.30] And at that time, 10 years ago, I was a part of LNG carrier division that we carried the LNG for the customers. And in that division, I luckily managed to get a contract and begin the Eaton transportation. Eaton is there a little bit heavier gas than LNG, but it's a little bit lighter than LPG. And there is no transportation mode for long-haul ocean shipping.
[00:27:46.42] So we just had a project within the customer and shipyard, and we just make a debut of the first very large atom carriers that we call VOEC's, which was, of course, the first-of-a-kind in the market. And my boss at that time, he felt interested and then assigned me to find a new business opportunities in non-conventional areas. And that was the beginning of my life as a business development guy.
[00:28:19.07] And since then, I always try to find what's coming into the market and what MOL needs to do to expand its business domains. And I made some projects, successful ones and unsuccessful ones, and at least two projects for me first, like, investment into the clean fuel projects. And the latest one is setting up a corporate venture capital, which is MOL Switch. It's again, in the clean tech space.
[00:28:49.94] Of course, in three, four, or five years ago, the climate change was at that time already was a big agenda. And we had to start to think of, first, how we should tackle these climate change things, and how we can make any changes from the business point of view over this [INAUDIBLE].
[00:29:16.79] Karen Baert: That's such a cool journey in many ways. You've been an intrapreneur within a big organization, always focused on innovation, new business development opportunities. And then that led you to focus on decarbonization as one of these initiatives.
[00:29:32.11] Shunichiro Shimamura: Yeah.
[00:29:32.89] Karen Baert: Great. I'd like to end with a question that we ask every guest on our podcast. I have this strong belief that we all stand on the shoulders of the giants who came before us. To use Isaac Newton's words, "it's standing on their shoulders what makes us see further." In that context, who inspires you most and why?
[00:29:52.25] Shunichiro Shimamura: Well, I'm a little bit nervous, as this inspiration is from another company in Japan, not from MOL, but the founder of the Itochu Corporation, which is a big trading house in Japan. And he said, sanpo yoshi. Sanp yoshi is a Japanese word of wisdom, nurturing, in which in English, means a triple win or win-win-win.
[00:30:17.20] And what's a triple win? Well, it means that any business should be good for sellers first, and it should be good for buyers, and it should be good for societies. And then that's the word I was just inspired when I finished my undergrad and in joining MOL for my first job and still my job, actually.
[00:30:40.39] And the sanpo yoshi, or triple win, in other words, you don't squeeze your counterpart too much in any business cases. But still you have to make some money out of that. And your business should be good for society or environments, but you don't forget to make money out of that person. No business is sustainable when you don't make a profit. Sometimes I call this word of wisdom to find a balance in this space, [INAUDIBLE] space.
[00:31:12.75] Karen Baert: That's so powerful. I can't help thinking about the parallel with clean fuel projects, right? We need to build partnerships and projects where all the different stakeholders win. Otherwise, it's not a sustainable. Shunichiro, this has been such an insightful conversation. Thank you so much.
[00:31:32.57] I wish you and the brother Emerald Switch and MOL Group triple win-win-win going forward. And I can't wait to continue to follow your progress. Thank you very much.
[00:31:44.93] Shunichiro Shimamura: Thank you very much. Thank you for having me.
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