SMU-22-0037

RIDINGTHEDECARBONISATIONWAVE:BHPANDITSLNG DUAL-FUELLED VESSELS

We realised that the industry has been looking for a silver bullet for maritime decarbonisation, but there is no silver bullet. We cannot afford to look past good in the pursuit of perfection.

-RashpalSinghBhatti,VicePresident,MaritimeandSupplyChainExcellence,BHP

ItwasabreezymorninginFebruary2022atJurongPort,Singapore,andRashpalBhatti(Bhatti), VicePresidentofBHPGroup's(BHP)MaritimeandSupplyChainExcellence(MSCE)arm,was filled with immense pride as he watched the world's first Liquified Natural Gas¹ (LNG) dual- fuelled Newcastlemax vessel, Mt. Tourmaline, pull into the port for its first LNG bunkering² operation. It was a significant moment in shipping history. It signalled the beginning of a transitionfromfuellingshipswithhighlypollutiveconventionalmarinefuelstowardsusingLNG, which was considered to have the potential to reduce greenhouse gas (GHG) emissions³ by nearly 30% per voyage. Mt. Tourmaline's journey was the start of a promising new era towards shipping sustainability.

BHP began as an Australian mining company and expanded its portfolio, which included diversifyingintoshipcharters.Overtime,BHP'sMSCEteamgrewtobecomeanimportantpart of the business. In 2019, the company chartered ships to perform more than 1,500 voyages and transported250milliontonnes⁴ ofcommoditiesglobally.⁵ Eventhen,thecompanybelievedthat more had to be done to truly support its mission statement: "[BHP's] purpose is to bring people andresourcestogethertobuildabetter world."So,asitscharteringbusiness grew, the company aligned with the 2015 Paris Agreement and focused on reducing its charter-related GHG emissions from ships.

To reduce emissions, Bhatti and his team managed to achieve a first in the maritime industry. TheLNGbunkeringofMt.TourmalineanditsonwardvoyagesawareductioninGHGemissions ofnearly30%onthatvoyagecomparedtoexistingships poweredbyconventionalfuel.Despite the achievement, Bhatti knew this was only the start. "This was the easy part. What more could wedotogetBHP'scharteringbusinessfrom30%GHGreductionspervoyage,tocloserto

¹LNGwasnaturalgasthathadbeenconvertedtoaliquidstateforthepurposeofsafetransport.

²LNGbunkeringwastheprocessoffuelingashipwith LNG.

³ GHG emissions comprise mostly of carbon dioxide, followed by methane, nitrous oxide and other fluorinated gases. All GHGemissions and operational energy consumption data or references to GHG emission and operational energy consumption volumes(including ratios or percentages) in this case are estimates and, due to differences in emissions calculation methodologies, may notbe comparable with one another or with data produced by other parties.

⁴1tonne=1,000kilograms

⁵RashpalBhatti,"BuildingaCOVID-Resilient SupplyChainEpisodeThree:OutMaritimeNetwork",BHP.com,July8,2022,https://www.bhp.com/news/prospects/2020/07/building-a-covid-resilient-supply-chain-episode-three-our-maritime-network,accessed September 2022.

ThiscasewaswrittenbyProfessorShantanuBhattacharya,Dr.FlocyJosephandMahimaRao-KachrooattheSingapore ManagementUniversity.Thecasewaspreparedsolelytoprovidematerialforclassdiscussion.Theauthorsdonotintend to illustrate either effective or ineffective handling of a managerial situation. BHP Group Limited and its subsidiaries ("BHP") accept no responsibility for, and make no warranties or representations as to the accuracy, completeness, reliability or conclusions presented in this case and this case should not be relied upon as a recommendation, representation or forecast by BHP.

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100%?"TherewerevaluablelessonslearntfromMt.Tourmaline,andBhattiwonderedhowthey could apply their lessons to other parts of BHP's business.

Reducing GHGEmissionsinShipping

Maritime transport was the backbone of the global economy and played a vital role in international trade as it was an energy efficient and economical way of transporting goods. Although it accounted for nearly 75% of global freight activity⁶, it utilised only one-fifth of the energy, or nearly 225 million tonnes of oil equivalent.⁷ Shipping was also more cost-effective compared to road and air transport as it allowed a larger volume and weight of goods to be transported.Asaresult,morethan80%ofgloballytransportedgoodswereshippedbysea(Refer to Exhibit 1for an overview of maritime trade between 1990 and 2020).⁸ Maritime trade grew suchthat between 1990and2020,tradevolumeshadmorethandoubled (Refer to Exhibit 2for global maritime trade by volume between 1990 and 2020).

As maritime transport grew, so did carbon dioxide (CO2)-heavy GHG emissions, which contributedtoglobalwarming.(RefertoExhibit3forCO2emissionsfrominternationalshippingbetween 2000 and 2020.) The industry contributed nearly three percent of global emissions and 11% of 7.3 billion tonnes of vehicular emissions (Refer to Exhibit 4for transportation sector CO2emissions in 2020). Of this, ships that carried 5,000 or more of gross tonnage⁹ produced nearly 85% of shipping-related CO2emissions.¹⁰

The growth in maritime trade led to higher demand for fossil fuels. Heavy fuel oil¹¹ (HFO) was traditionally used as it was inexpensive and had a high energy densitya small amount fuelled ships over great distances (Refer to Exhibit 5for the profile of shipping fuel consumption by fueltypein2019).However,itwashighlypollutiveasitproducednitrogenoxide(NOX),sulphur oxide(SOX),andCO2,whichresultedinacidrainandairbornetoxicparticulatesthatcontributed to respiratory diseases.¹²

SteeringTowardNet-ZeroMaritimeEmissions

To curb the release of pollutants, regulatory authorities like the International Maritime Organization (IMO) ¹³ began implementing measures such as sulphur caps and the use of scrubber¹⁴technology. In 2016, the IMOmandated that ships hadtoreduce the sulphur content

⁶Thisincludedinlandtransport.Freightactivitywasmeasuredbytonneperkilometre.

⁷ InternationalEnergyAgency,"EnergyTechnologyPerspectives2020"(PDFfile),downloadedfromIEAwebsite,https://iea.blob.core.windows.net/assets/7f8aed40-89af-4348-be19-c8a67df0b9ea/Energy_Technology_Perspectives_2020_PDF.pdf, accessed August 2022.

⁸United NationsConference on Tradeand Development, "ReviewofMaritime Transport 2021", https://unctad.org/webflyer/review-maritime-transport-2021, accessed August 2021.

⁹Grosstonnagereferred tothetotalcarryingcapacityorthevolumeofspaceavailable withinashiptocarrycargo,passengers,fueland crew. This included the space within the hull, and any enclosed space on the ship's deck.

WorldOceanReview,"KeyShippingTermsinBrief",https://worldoceanreview.com/en/wor-1/transport/global-shipping/key-shipping-terms-in-brief/, accessed August 2022.

¹⁰InternationalMaritimeOrganization,"GreenhouseGasEmissions",https://www.imo.org/en/OurWork/Environment/Pages/GHG-Emissions.aspx, accessed August 2022. See footnote 3 regarding all GHG emissions data used in this case.

¹¹HFOwasthe residue aftercrudepetroleumhadbeentreatedanddistilledto createmorevaluable fuelslikeautomotivediesel andgasoline.

¹²Mitch Jacoby, "The Shipping Industry Looks for Green Fuels", Chemical & Engineering News, February 27, 2022,https://cen.acs.org/environment/greenhouse-gases/shipping-industry-looks-green-fuels/100/i8,accessedSeptember2022.

¹³ The IMO,formedin1948, wasapermanent internationalorganisation thatpromotedmaritime safety, and facilitatedadministrativeand legal matters pertaining to shipping in international trade.

¹⁴Scrubbers were cleaning technology used on ships to removeharmful components and particulate matter from exhaust gasesgenerated as part of the combustion process in marine engines.

of their fuel oil to less than half a percent by 2020. To achieve this, ships switched from using HFOtoverylowsulphurfueloil(VLSFO). Somemixed fuelstoachieveVLSFO.For example, gasoil,averylowsulphurcontentoil,wasblendedwithHFOtoloweritssulphurcontent.Other ships that did not use VLSFO installed scrubbers.¹⁵ Scrubbers routed exhaust gases into a chamber where a fine spray of washwater removed pollutants before the 'washed' gas was released into the atmosphere. Some, however, were sceptical about the benefits of scrubbers because the acidic washwater was discharged into the ocean.¹⁶ The sentiment was that the scrubbers simply converted air pollution into water pollution. Then, in 2018, the IMO aligned with the Paris Agreement,¹⁷ mandating that the industry reduce GHG emissions from ships and eventually phase out such emissions as soon as possible or within the century. One of the mandateswas,using2008asabaseyearforcomparison,shipshadtoreducetheiremissions,per international transportroute, byanaverageof at least40% by 2030, withanaimto reducethem by 70% by 2050.¹⁸

The mandates called for the industry to analyse the fuel consumption of ship types and subsequently,whethertheywerewell-placedtousealternativefuels. Aship's fuelconsumption depended on the ship type, its speed and deadweight tonnage (DWT)¹⁹. Certain ships such as bulk carriers and containers²⁰ had high fuel consumption and emission rates due to their high DWT and the distancesthey travelled (Refer to Exhibit 6for CO2emissions by vessel type andExhibit 7for maritime fuel consumption by fuel type). Further, it was possible to forecast fuel requirementsandconsumptionifshipshadafixedrouteandschedule.Thismadeiteasiertoplan fuel bunkering facilities along such routes if alternative fuels had to be used.

ExploringAlternativeFuelsand Innovations

Usingalternativefuelstodecarbonise was challengingandrequired collaborativeplanning.The industrytypicallycomprisedlarge,capital-intensive,long-lifeassetswithlifespansofaround25 years, that operated on heavily polluting fuels like HFO. It was especially difficult to find sustainablefuelsolutionsfortransoceaniclargevesselsasthisrequiredcoordinatedeffortswithin themaritimeecosystemshipyards,vesselowners,ports,regulatorybodiesandfuelsuppliers tofacilitatelong-distancemaritimetravelwithcarbonabatementtechnologies.Bhatticoncurred, "The shipping industry was notoriously slow in innovation, especially to do with sustainability and decarbonisation."

Despitethehurdles,themaritimeindustryexploredfuelssuchasLNG,hydrogen,ammonia,and bio-fuelsasalternativestoHFOand VLSFO,eventhoughtheyall camewithlimitations.(Refer to Exhibit 8for the advantages and disadvantages of select alternative and emerging fuels.) Of alltheavailablefuelalternatives,industryexpertsregardedbio-fuelsasthemosttechnologically viable as they could be used with drop-in or blend-in options. Drop-in fuels were functionally equivalenttopetroleumandcompatiblewithexistingonboardinfrastructure,whileblend-infuels

¹⁵ International Maritime Organization, "IMO 2020 - Cutting Sulphur Oxide Emissions",https://www.imo.org/en/MediaCentre/HotTopics/Pages/Sulphur-2020.aspx, accessed September 2022.

¹⁶ Sam Davin, "The Trouble with Scrubbers: Shipping's Emissions 'Solution' Creates New Pollution", World Wide Foundation,July 14, 2020, https://wwf.ca/stories/scrubbers-creates-new-pollution/, accessed September 2022.

¹⁷Tomitigateclimatechange,the2015ParisAgreementaimedtolimitglobalwarmingtowellbelowtwodegreesCelsius.

¹⁸InternationalMaritimeOrganization,"GreenhouseGasEmissions",https://www.imo.org/en/OurWork/Environment/Pages/GHG-Emissions.aspx, accessed August 2022. See footnote 3 regarding all GHG emissions data used in this case.

¹⁹ Deadweight tonnagereferredtotheweightthat a shipcouldcarry and was measuredintonnes.Thisdidnot includetheweightofthe ship itself.

²⁰ Bulk carriers transported large volumes of loose, unpackaged goods such as iron ore and grain, and did not operate on a fixedschedule or route. Container ships could carry containers, travelled at high speeds, carried the largest volume of goods across vastdistances, and travelled on fixed schedules and routes.

could be blended with conventional fuels. Both options resulted in varying degrees of GHG emissions reductions.

As technological capabilities developed, the industry saw that the advent of emerging, bio- mass²¹-based fuels held great potential for near-zero GHG emissions. These emerging fuels included bio-based natural gas, bio-methanol, and lignin-alcohol mixes (Refer to Exhibit 8).²² Some of these fuels were already being tested for use as shipping fuel. For example, bio-based natural gas, otherwise known by multiple names-bio-gas, renewable natural gas (RNG), and sustainablenaturalgas(SNG)-waschemicallysimilartofossilfuel-basednaturalgas.Produced fromthedecompositionoforganicmaterial,bio-gascomprisedmethane,CO2andothergasesin small quantities, which made it highly usable. In 2020, shipping company Emirates Shipping Line(ESL)usedliquifiedbio-gas(LBG)tofuelitsironoretransportvessel.²³Anotherfuelused was bio-methanol, which was synthesised from bio-gas. In 2021, shipping company Maersk investedinastart-upthat producedbio-methanol,andbeganusingabio-methanolfuelblendfor its vesselsan option that the company felt was scalable in the long run.²⁴ That same year, Maerskalsoinvestedinanothercompanythatproducedandcommercialisedalignin²⁵-basedfuel mix.²⁶ A by-product of plants, lignin was the second-most abundant organic polymer on earth, after cellulose.

Manywithintheshippingindustryagreedthatusingalternativeandemergingfuelsrequiredmore than just technological know-how. Since most bio-fuels were produced from bio-mass, it was imperative that the shipping industry implement sustainability criteria to manage potential bio- massshortagesandsubsequently,bio-fuelavailability.Thisway,supplyandpriceriskscouldbe mitigated along the fuel supply chain.

Despite the existing solutions for shipping-related GHG abatements, most had multiple barriers to use and other solutions were met with growing distrust. At the same time, existing interim solutions did not seem to solve the problem. Industry experts no longer believed that scrubbers helped reduce harmful emissions. In fact, some felt that the existence of scrubbers provided an impetus to certain ship owners to retain highly-pollutive HFO engines, as they believed that scrubbersmitigatedanyairpollutionsuchengineswouldcause.Itbecameincreasinglyclearthat theadoptionoflow-carbonorcarbon-neutralfuelsrequiredapushfromregulatoryauthoritiesto convince companies to adopt such practices.

Collaborationin theMaritimeEcosystem

It was clear that the maritime industry needed market-based interventions from multiple stakeholders to push for the use of zero- and low-carbon fuels. Many felt regulatory authorities neededtostepin.Some suggestedthatshippingcompaniesoughttopaytaxesoneverytonneof

²¹Bio-masssourcesincludedwastefromwoodprocessing,agriculturalcropsandanimalandhumanwaste.U.S.EnergyInformationAdministration, "Biomass Explained", https://www.eia.gov/energyexplained/biomass/, accessed October 2022.

²² Office of Energy Efficiency & Renewable Energy, "Sustainable Marine Fuels",https://www.energy.gov/eere/bioenergy/sustainable-marine-fuels, accessed September 2022.

²³ESL Shipping, "Towards More Sustainable Shipping: ESL Shipping First in Finland to Use 100% Renewable Liquefied Biogasin Maritime Transport", June, 11, 2020, https://www.eslshipping.com/en/news/towards-more-sustainable-shipping-esl-shipping-first-in-finland-to-use-100-renewable-liquefied-biogas-in-maritime-transport, accessed October 2022.

²⁴ Keith Dawe, Randall Krantz, Lara Mouftier and Emma Skov Christiansen, "Future Biofuels for Shipping" (PDF file), GlobalMaritimeForum,March28,2022,https://www.globalmaritimeforum.org/news/future-biofuels-for-shipping,accessedOctober2022.

²⁵ Found in plant cell walls, lignin was an organic polymer that provided plants with shape and rigidity. ScienceDirect, "Lignin",https://www.sciencedirect.com/topics/agricultural-and-biological-sciences/lignin, accessed October 2022.

²⁶ "Maersk Invests in Vertoro to Develop Green Lignin Marine Fuels", Maersk press release, October 14, 2021,https://www.maersk.com/news/articles/2021/10/14/maersk-invests-in-vertoro-to-develop-green-lignin-marine-fuels, accessedOctober2022.

CO2emitted bytheirvessels; in 2020,commoditiestrading group Trafigura proposed a US$300levy; while Japan proposed a tax of US$52 in 2022.²⁷ As a consequence, Trafigura faced immense backlash. Trafigura's global head of decarbonisation, Rasmus Bach Nielsen, said, "There was a huge amount of scepticism when we initially proposed the levy, particularly from inside the IMO where a lot of people had seen the market-based measures discussions fail in 2013 and did not think it was going to work this time round."²⁸

To make decarbonisation feasible, the maritime industry had to work in unison and make infrastructural changes to support that vision. However, the global maritime fleet was highly fragmentedtherewerethousandsofshipowners,includingsomethatownedonlyafewships. Thetop10shipownerscomprisedjust20%ofthegroup. Suchfragmentationoftenledtoalack of consensus when it came to decision-making.²⁹ On the other hand, private companies such as financial institutions saw an opportunity and were more willing to fund sustainable industries. SomedidthisbyusingtheSustainabilityLinkedLoanPrinciples(SLLP)whichlinkedloanterms to the borrower's performance, based on sustainability performance targets.³⁰

Sustainableshippingtargetsrequiredalargeportionofinvestmentsforland-basedinfrastructural changes. Of the estimated US$1.65 trillion investment needed to reduce shipping-related emissionsby2050,87%wasrequiredforland-basedinfrastructurechangesthatcomprisedfuel- production, storage and bunkering facilities.³¹ Experts estimated that using ammonia as the fuel of choice, only 13% of this investment was required for the ships' new machinery, occasional retrofits, and onboard fuel storage.³² To get the ball rolling on such investments, the industry needed more coordination among stakeholders to collaborate and innovate toward net zero emissions.

BHP:MappingtheRoute toSustainableShipping

BHP began operations as a mining company in 1885, in Broken Hill, Australia. The company discovered, developed and marketed natural resources such as metals, coal, oil and gas and diamonds before it diversified into creating value-added flat steel products.³³ In 1915, BHP charteredthesteamer'EmeraldWings'to transportthefirstshipmentofironorefromSouth

²⁷ Jim Loftis, Ciara Ros and Tatiana Freeman, "Carbon Taxes in the Shipping IndustryAssessing Japan's Proposal", BloombergTax, June 20, 2022, https://news.bloombergtax.com/daily-tax-report-international/carbon-taxes-in-the-shipping-industry-assessing-japans-proposal, accessed September 2022.

²⁸ Richard Meade, "Shipowners at Risk if They Ignore Carbon Pricing, says Trafigura", Lloyd's List Intelligence, September 23,2021, https://lloydslist.maritimeintelligence.informa.com/LL1138292/Shipowners-at-risk-if-they-ignore-carbon-pricing-says-Trafigura, accessed September 2022.

²⁹Shell Global, "Decarbonising Shipping: All Hands on Deck", (PDF file), downloaded from Shell plc website,https://www.shell.com/promos/energy-and-innovation/decarbonising-shipping-all-hands-on-deck/_jcr_content.stream/1594141914406/b4878c899602611f78d36655ebff06307e49d0f8/decarbonising-shipping-report.pdf,accessed August 2022.

³⁰ Henrik Hagberg and Ingrid Skjelmo, "Norway: Towardsa More Sustainable Shipping Industry - WhereareWe Now?"Mondaq,March 4, 2021, https://www.mondaq.com/marine-shipping/1038458/towards-a-more-sustainable-shipping-industry-where-are-we-now, accessed September 2022.

³¹ Raucci Carlo, Bonello Jean Marc, Suarez de la Fuente Santiago, Tristan Smith, and et al., "Aggregate Investment for theDecarbonisation of the Shipping Industry" (PDF file), UMAS, https://www.globalmaritimeforum.org/content/2020/01/Aggregate-investment-for-the-decarbonisation-of-the-shipping-industry.pdf, accessed September 2022. See footnote 3 regarding all GHGemissions data used in this case.

³² Randall Krantz, Kasper Sgaard and Tristan Smith, "The Scale of Investment Needed to Decarbonize International Shipping",Global Maritime Forum, January 20, 2020, https://www.globalmaritimeforum.org/news/the-scale-of-investment-needed-to-decarbonize-international-shipping,accessed August 2022. See footnote 3 regarding all GHG emissionsdataused in this case.

³³ Value-added flat steel products referred to special grade semi-finished sheets and plates of steel, that were used in the power,shipping, defence and automobile industries.

Australia to Newcastle, England.³⁴ Nearly a century later, BHP became one of the largest dry bulk charterers in the maritime trade industryit had clocked in more than 1,500 voyages per year, transporting nearly 250 million tonnes of iron ore, copper and coal to BHP's customers around the world. ³⁵ The company further grew its ship chartering portfolio to include the management of a broader scope of supply chain operations, which included a maritime and supply chain excellence arm.

BHP's MSCE team oversaw the company's maritime transportation strategy and ocean freight charterstomeetits transportationneeds. AsBHP'smaritimebusiness grew,andas akeyplayer in the industry, the sustainability agenda quickly became a key priority.³⁶

BHP,Sustainability,andtheMaritimeEcosystem

Tasked with overseeing BHP's maritime sustainability efforts, Bhatti saw that more had to be donetosupportshipownerstowardsreducingtheirGHGemissions."As thelargestchartererin the world, we had a responsibility to deliver sustainable decarbonisation value to the industry," he asserted. To dothis, heneededthe company's internal buy-in before exploringtechnological options for shipping-related decarbonisation efforts and finally, garnering the support of the maritime ecosystem to make decarbonisation a long-term focus for the shipping industry.

SecuringInternalBuy-in

BhattineededthesupportofhispeersandteamatBHPinhiseffortstoexplorewhatthecompany could do to support the reduction of GHG emissions from the vessels it chartered. This meant that his team had to be aligned with BHP's focus. "It was all well and good for me to have the conviction, but if the team didn't share that conviction, then we were never going to get the project over the line. Your team must enable you, and see the same bigger picture as you," he maintained. Assessing the makeup of his team, Bhatti saw that, "what got us to 2015, was not going to get us to 2021". He hired head hunters to look for people better suited to his vision. "I inherited a wonderful team but today, we have retained only three out of the original 70 team members we had.Within ourteam,our purposestatementis'Safest coverageatthe lowestcost, sustainably'all our team members know this purpose statement by heart," he shared.

WhileBhattishapedhisteam toenableBHP'sdecarbonisationefforts,heworkedjust ashardto convince his peers to see value in his efforts. "There were a few bridges to cross. Not many shared my vision, but at the same time I was told plainly to just go ahead and do it. After all, BHPwasaminingcompanythatdecidedtohaveaship-charteringarm.Wehadto makeamark in our efforts towards supporting decarbonisation in this part of our value chain or not do it at all."

ExploringDecarbonisationTechnology

Bhatti and his team decided that to reduce GHG emissions, BHP and the maritime industry needed a two-pronged approach: first, to find a reliable way to measure emissions and, second, to explore alternative fuels.

³⁴ BHP, "Australians in Company"(PDFfile),August 1985, https://www.bhp.com/-/media/project/bhp1ip/bhp-com-en/documents/about/our-history/150813_ourhistory_australiansincompanybhpsonehundredthyear.pdf,accessedSeptember2022.

³⁵ Rashpal Bhatti, "The Future State of Freight: Safer, Greener, Leaner", BHP, May 30, 2017,https://www.bhp.com/news/prospects/2017/05/the-future-state-of-freight, accessed September 2022.

³⁶BHP,"Commercial",https://www.bhp.com/about/our-businesses/commercial,accessedSeptember2022.

GHGEmissionRatingsinAction

BHP needed an accurate method of measuring the GHG emissions of their charters. For this, Bhatti turned to RightShip³⁷, an organisation that developed industry-wide safety standards to avoid the loss of human life at sea. It also included a focus on GHG emissions and developed a GHG Rating to measure theGHG output of vessels.³⁸

However, Bhatti and his team knew that ratings alone were not enough; they had to translate to tangible action that supported sustainability. "Whenever we took on a vessel, we had to take a good look at not just the cost and safety of the vessel but also its carbon footprint. This was not part of our company's DNA; we had to make it a part of our DNA. This ideology still isn't common across the industry." In 2017, BHP and RightShip took the GHG Rating further and built on it. RightShip's revamped GHG rating system recommended charterers toward vessels with a lower emissions rating. The rating system was on a scale from 'A' to 'G', with ships holding an 'A' rating having the least emissions and those with a 'G' rating having the worst emissions.³⁹Thisencouragedvesselownerstoimprovetheirsustainabilityratingsbyimproving engine performance. BHPwas firmabout its stance on staying onthelow-emissions course and did not charter vessels that had the lowest ('F' and 'G') ratings. Implementing this stance on GHG ratings paid off and BHP saw a 12% reduction in GHG emissions from the vessels that they chartered.⁴⁰

Utilisingalternative,'green'fuels

Determined to see greater GHG abatements, in a trailblazing move in 2019, BHP released a world-first tender for Newcastlemax bulk carriers capable of being fuelled by LNG to transport up to 27 million tonnes of iron ore, or nearly 10% of the company's annual transportation volumes of iron ore.⁴¹Bhatti rationalised:

We had to stop thinking about zero-carbon fuel, because there is no zero-carbon fuel available today. It's easy to say,"Let's push reducing emissions to the side and revisit this strategy until wediscoverzero-carbonfuel,"but that wasnotgood enough.Wehad towork with what was available in the market to achieve abatementseven on a small scale.

LNG was the fuel of choice for this maiden large-scale GHG emissions reduction endeavour. Although LNG was difficult to store due to its cryogenic nature, it resulted in significant reductions in NOX, and CO2emissions, and SOxelimination, compared to conventional fuel.Additionally, LNGbunkering infrastructure existedin theindustry, and LNG wasbeingusedas amarinefuelforsmallervessels.Further,BHPcollaboratedinajoint-industryprojecttoestablish an LNG-dual fuel Newcastlemax vessel design. The collaboration indicated that LNG was a viable commercial prospect. Other alternatives like bio-fuels, which it was estimated could reduce CO2emissions by 40% to 90% whencomparedto conventional fuel, wereunavailableat

³⁷Launchedin2001,RightShipwastheresultofacollaborationbetweenBHPandminingcompanyRioTinto.

³⁸ RightShip, "Zero-Harm Maritime Industry", https://rightship.com/about-us/, accessed September 2022. See footnote 3 regardingall GHG emissions data used in this case.

³⁹ BHP, "BHP Embraces Emissions Reduction Innovations in Shipping Industry", September 16, 2019,https://www.bhp.com/news/case-studies/2019/09/bhp-embraces-emissions-reduction-innovations-in-shipping-industry, accessedSeptember2022. See footnote 3 regarding all GHG emissions data used in this case.

⁴⁰ Rashpal Bhatti, "Greater Freight Partnerships Sets Course for Sustainable Shipping", BHP, June 18, 2019,https://www.bhp.com/news/prospects/2019/06/greater-freight-partnerships-sets-course-for-sustainable-shipping, accessedSeptember2022. See footnote 3 regarding all GHG emissions data used in this case.

⁴¹ BHP, "BHP Embraces Emissions Reduction Innovations in Shipping Industry", September 16, 2019,https://www.bhp.com/news/case-studies/2019/09/bhp-embraces-emissions-reduction-innovations-in-shipping-industry, accessedSeptember2022.

scale in Asia or commercially viable at the time. ⁴² Nevertheless, BHP did later, in 2021, collaborate with German shipping company Oldendorff Carriers and bio-fuel company GoodFuels to conduct a bio-fuel trial for an ocean-going vessel in Singapore.⁴³ Bhatti recalled: "Our requirement was a 20% to 30% reduction in emissions. LNG was the only commercially andtechnicallyviable solutionthatwasavailable,butnotawidely usedoneinthebulksegment of the maritime industry."

BHP's tenderwas open to ship owners, LNG fuel providers, and even financial organisations.⁴⁴ "The response from the tender was phenomenal," marvelled Bhatti. When he and his team evaluatedthetenderproposals,theyrealisedsomecompaniesofferedvesseldesignoptionswith 30% or more reduction in emissions.

Asaresultofthetender,theteam nowhadamultitudeofpartnerswhocouldbringvaluetotheir GHGemissionsreductionendeavour.BHPknewitwasimportanttoreceiveaccurateandtimely readingsofitscharters'GHGemissions,sothefirmpartneredwithriskmanagementandquality assurance companyDet Norske Veritas(DNV).DNVhaddevelopedcapabilitiestoprocess and checkGHGemissiondataagainstthestandardsthatBHPhadset.Overtime,thishelpedtobring transparency to BHP's GHG reporting. Unavailable or insufficient data drove the company to workwithvesselownersandoperatorstoensurethefutureavailabilityandcollectionofaccurate datainatimelymanner.⁴⁵Inparallel, BHPdecidedtocharter shipsthat couldrunon LNGfuel. Forthis,itawardedthetenderforafive-yearcharterin2020forfiveNewcastlemaxbulkcarriers capable of being fuelled on LNG to Eastern Pacific Shipping (EPS).⁴⁶ The carriers, the first of whichwasMt.Tourmaline,wereintendedtocarryironorebetweenWesternAustraliaandNorth Asia.⁴⁷Bhatti lauded EPS' foresight:

EPS had pre-empted the market's requirements and already had vessels in the build phase, inslotsintheshipyards.Thismeantthattheycoulddeliverthevesselstousataleastayear before anybody else in the market, and at a more cost-effective rate. This allowed us to be more cost-effective too. Additionally, when we told them what our requirements were, they agreed to customise the vessels accordingly.

WithasuccessfulwaytomeasureGHGemissionsandcustomisedcharters,BHPranatenderfor the supply of LNG bunker fuel. To ensure access to a reliable supply of LNG, BHP signed an LNG supply agreement with fuel company Shell Eastern Petroleum. Vandita Pant, BHP's chief commercial officer, felt the entire venture brought many benefits to the maritime ecosystem: "The LNG bunkering contract will enable BHP to manage fuel supply risk, build LNG operationalcapabilityinternally,andalsohelptostrengthentheemergingLNGbunkeringmarket

⁴² Arnes Biogradlija, "Study Shows Biofuels Can Reduce Shipping Emissions", Industry and Energy, September 28, 2021,https://www.industryandenergy.eu/biobased-economy/study-shows-biofuels-can-reduce-shipping-emissions/, accessed December2022. See footnote 3 regarding all GHG emissions data used in this case.

⁴³ BHP,"BHP,OldendorffandGoodFuelsSuccessfullyCompleteFirstTrialwithSustainableBiofuelSuppliedinSingapore",April15, 2021, https://www.bhp.com/news/media-centre/releases/2021/04/bhp-oldendorff-and-goodfuels-successfully-complete-first-trial-with-sustainable-biofuel-supplied-in-singapore, accessed December 2022.

⁴⁴BHP,"BHPEmbracesEmissionsReductionInnovationsinShippingIndustry",https://www.bhp.com/news/case-studies/2019/09/bhp-embraces-emissions-reduction-innovations-in-shipping-industry, accessed September 2022.

⁴⁵DNV, "DNV and Veracity Become Key Enablers inBHP's Scope 3 Maritime Emissions Strategy", April 1, 2022,https://www.dnv.com/news/dnv-and-veracity-become-key-enablers-in-bhp-s-scope-3-maritime-emissions-strategy-222417,accessed September 2022.

⁴⁶EPSwasaSingapore-basedshipmanagementandowningcompany.

⁴⁷BHP, "BHPAwardsWorld's FirstLNG-Fuelled NewcastlemaxBulk CarrierTendertoReduce Emissions", September3,2020,https://www.bhp.com/news/articles/2020/09/bhp-awards-worlds-first-lng-fuelled-newcastlemax-bulk-carrier-tender-to-reduce-emissions, accessed September 2022.

intheregion.Thiscontractisexpectedtoformupto10percentofforecastedAsianLNGbunker demand in FY2023."⁴⁸

Despite a successful tender, some within the company remained unconvinced about Bhatti's attempts to reduce GHG emissions in maritime trade. Many of his colleagues were sceptical. Bhatti recalled: "Risk assessments were a mile long. Our ex-CFO rightfully played the devil's advocateandbroughtmyattentiontoalltheriskfactorsandliabilitiesWhatiftheLNGleaked? Whatiftheshipdidn'tturnup?HowwouldthisaffectBHP'sreputation?"However,Bhattiwas adamant that the potential for GHG emissions reductions ought to be prioritised, "As a leader, you must have conviction about something, either because it makes financial sense or it's the right thing to do forthe company, the industry or people. This was smackbang in the middle of it all."

His effortspaid off andinFebruary2022,the209,000DWTMt.Tourmalinewasdeliveredinto service under the charter between EPS and BHP and berthed at Jurong Port for its first LNG bunkering, before it sailed to Western Australia for iron ore loading (Refer to Exhibit 9for a photograph of Bhatti and Mt. Tourmaline). The ship was bunkered through the first LNG bunkering vessel in Singapore, the FueLNG Bellina, a joint venture between Shell and mobile offshore platform company Keppel Offshore & Marine.⁴⁹

Themoodwasjubilant.EPS'CEO,CyrilDucau,sawthemaidenLNG-fuelledtripasasolidstep in the right direction: "Today's historic LNG bunkering is further evidence that the industry's transition is in full swing. These ships tell both industries that significant carbon emission reduction is available today and necessary to implement, as we work towards net zero solutions."⁵⁰ Bhatti reflected on the journey, "We saw nearly 30% GHG emissions abatements comparedtoexistingships,withasignificantreductioninNOXandeliminationofSOXpollutants.Thebestpartwas,becausethevesselswereonacharterbasis,theybecamepartofouroperational expenditurewe didn't put a single dollar of capital expenditure toward the project."

ACollaborativeMaritimeEcosystem

It was a validating moment for Bhatti to see Mt. Tourmaline berth at Jurong Port, a feat made possibleonlybecausemanypartieswithinthemaritimeecosystemhadpulledtogethertorealise a vision. He recollected the momentous occasion:

Government officials were there, CEOs from across the industry were there, and BHP employeesfromtheofficeweretheretoo.DuetoCOVID-19,nobodyhadbeenonasitevisit for two and a half years. For some, it was the first time they had even been on board a working ship, let alone a Newcastlemax vessel fuelled by LNG. It had become a movement because it was good for us, good for them and good for the ecosystem.

Thatwasthemomentthepennydroppedforus.ThatwasasolidifyingmomentforBHP.

Bhatticontemplatedonperhapsthegreatest enablerofthemall,theSingaporegovernment.The MaritimeandPortAuthorityofSingapore(MPA)hadsharedinformationandprovidedpathways

⁴⁸ BHP, "BHP Awards LNG Supply Agreement to Shell for LNG-Fuelled Iron Ore Vessels", December 1, 2020,https://www.bhp.com/news/media-centre/releases/2020/12/bhp-awards-lng-supply-agreement-to-shell-for-lng-fuelled-iron-ore-vessels, accessed September 2022.

⁴⁹TheFueLNGBellinacouldbunkerfuelattherateof100to1,000cubicmetresperhour.

⁵⁰BHP, "BHP and EPS Welcome World's First LNG-fuelled Newcastlemax Bulk Carrier for Bunkering in Singapore by Shell",February 7, 2022, https://www.bhp.com/news/media-centre/releases/2022/02/bhp-and-eps, accessed September 2022.

for operational discussions that helped BHP prepare for a safe and efficient LNG bunkering operation. "Singapore enabled companies like BHP because it was willing to share its network of connections and support a good idea."

BeyondtheHorizon

Bhatti's team at BHPandthe maritime ecosystem hadcome togethertomake Mt.Tourmalinea success.BhattifelttheMt.Tourmalineexperiencehadproventheexpertsrightacollaboration amongvessel owners,regulatoryauthoritiesandfuel supplierswasnecessaryforthe industryto progresstowardsdecarbonisedshipping.Indeed,BHPanditspartnershadachievedamammoth task in the effort to launch Mount Tourmaline. Still, the question remained whether what they had achieved was enough in the attempt to support further reductions in GHG emissions from shipping. There was no dearth of experts warning that current measures were insufficient to achievenetzeroemissions,andthatwhattheindustryneededinsteadwasmedium-tolong-term measures.⁵¹

Achieving long-term goals required long-term planning and collaboration. Some companies in theshippingindustryhadtakentoinvestingintheresearchanddevelopmentofsustainablefuels. Bhatti's experience had shown him that investments alone were not enough. The support of the Singapore government had helped enable this endeavour, but some wondered what the future ideal regulatory role was in driving sustainability in the maritime sector. How else could governments enable the growth of sustainable or "green" fuels? Further, since the development and use of sustainable fuels in the maritime sector required a collaborative effort across governments, fuel suppliers, shipowners and other industry participants, what else could the maritime sector do to develop the ecosystem for sustainable fuels? Lastly, could the lessons learned from their maritime experience be transferred to BHP's other business verticals?

⁵¹International Energy Agency, "International Shipping", https://www.iea.org/reports/international-shipping, accessed September2022.

EXHIBIT1:OVERVIEWOFGLOBALMARITIMETRADE,1990-2020

Item	Volume/Amount
OverviewofGoodstraded
Crude Oil	1.7billiontonnes
Iron Ore	1.5billiontonnes
Coal	1.2billiontonnes
Grain	0.5milliontonnes
Shippingtradevalue	US$16trillion

Source:AdaptedfromVolumeofInternationalSeaborneTradefrom1980to2020,byCargoType,via Statista, accessed August 2022.

EXHIBIT2:GLOBALMARITIMETRADEBYVOLUME,1990-2020

Year	Transportvolume (billion tonnes)
1990	4
2000	6
2010	8.4
2020	10.65

Source:AdaptedfromVolumeofInternationalSeaborneTradefrom1980to2020,byCargoType,via Statista, accessed August 2022.

EXHIBIT3:CARBONDIOXIDEEMISSIONSFROMSHIPPING,2000-2020

Year	MetrictonnesofCarbonDioxide (MtCO2)
2000	502
2005	572
2010	615
2015	660
2020	646

Source: Adapted from https://www.iea.org/reports/international-shipping, accessed September 2022. See footnote 3 regarding all GHG emissions data used in this case.

EXHIBIT4:CO2EMISSIONSBYTHETRANSPORTATIONSECTOR,2020

Source: Adaptedfrom the Contribution of Carbon Dioxide Emissions Produced by the Transportation Sector Worldwide in 2020, by Subsector, via Statista, accessed August 2022. See footnote 3 regarding all GHG emissions data used in this case.

EXHIBIT5:SHIPPINGFUELCONSUMPTIONBYFUELTYPE,2019

Fueltype	Milliontonnesofoil equivalent (Mtoe)	Millionbarrelsperday (mb/d)
Heavy(residual) fuel	180	3.7
Distillate oil products (maritimegasanddieseloil)	45	1
Gas(liquifiednaturalgas)	0.1	0.002
Total	225.1	4.702

Source:AdaptedfromInternationalEnergyAgency,"EnergyTechnologyPerspectives2020"(PDFfile), downloaded from IEA website, https://iea.blob.core.windows.net/assets/7f8aed40-89af-4348-be19-c8a67df0b9ea/Energy_Technology_Perspectives_2020_PDF.pdf, accessed August 2022.

EXHIBIT6:CO2EMISSIONS(MILLIONMETRICTONNES)BYVESSELTYPE,2020

Source: Adapted from CO2Emissions in Worldwide Shipping in 2020, by Ship Type (in Million Metric Tons CO2), via Statista, accessed August 2022. See footnote 3 regarding all GHG emissions data used in this case.

EXHIBIT7:MARITIMEFUELCONSUMPTIONBYFUELTYPE(2019AND2020)

FuelType	Fuel Consumption (millionmetrictonnes)
	2019	2020
HeavyFuelOil	172.5	100.5
LightFuelOil	6.5	65.5
Diesel/GasOil	24	24.5
LiquifiedNaturalGas (LNG)	10	12

Source:AdaptedfromAnnualFuelConsumptionbyShipsWorldwidefrom2019to2020,byFuelType(in Million Metric Tons CO2), via Statista, accessed August 2022.

EXHIBIT 8: ADVANTAGESAND DISADVANTAGES OF SELECT ALTERNATIVEANDEMERGING FUELS

Fuel	Advantages	Disadvantages
LNG	ComparedtoHFO,25%less carbon intensive EmittedclosetonoNOXandSOX	Somefeltitwasafossil fuel Thedangerofunintentionalmethane* leakageswhileLNGwasproduced, transported or bunkered
Hydrogen	Had multiple cross-sector applications like the shipping, aerospaceandsteelmanufacturing industries Moredevelopedresearchonitwas available DidnotproduceanyCO2orharmful by-product	Lowenergydensityfuel Highly flammable Costly: must be liquefied for usage; energy-andcapital-intensiveprocess Heavy investments required for refuelling,port,storageandbunker infrastructurelimituse onshort-to medium-distance routes CO2abatementsarenegligibleifproduced using fossil fuels**
Ammonia	Hada30%higherenergydensity by volume, as a compound with nitrogen and hydrogen Easiertostoreandtransport compared to hydrogen Oneofthemosttradedchemicals, thus had significant industry expertise around its onboard handling	Lowflammability Highautoignitiontemperature,sotook longer to ignite: it burnt at 630C compared to diesel oil which burnt at 210C Expensivetoproduce,thereforeitwas unfeasible to produce in bulk Highlytoxic
Cheapercomparedtootherfuels, negated the need to develop new fuel systems BlendedeasilywithHFO Bio-fuel	Limits to production scalability: availability of feedstock (animal fat, vegetableoilandotherresidualorganic wastematerial)determinedproduction, which influenced the market price of bio-fuel Many viewed bio-fuel merely as a componentofHFOmixandnotasa solutiontothedecarbonisation problem***

Bio-based natural gas	Producedfrommultiplerenewable organic sources: crops, animal manure,municipalsolidwasteand wastewater Easeoftransitioncanbeusedin any system that runs on natural gas. LargereductionsinGHG emissions	Heavyinvestmentsarerequiredfor large-scale production of bio-gas Productionmightnotbeenoughtomeet shipping industry's demand Potentialmethaneslips
Bio-methanol	CanreduceGHGemissionsby nearly 65-95% compared to conventional marine fuels Canbeproducedfromawide- range of bio-mass feedstock	Expensive(US$700/metrictonne)dueto the high cost of production as compared to natural fossil fuel-based methanol (US$100-250/metric tonne) Highvolumeoffeedstockisrequired, which adds to costs Largefacilitiesarerequiredforgreater production efficiency Lowenergydensity
Lignin- alcoholmixes	Increases energy density of methanolwhenblendedwithit Lignin is the second-most abundantmaterialonearth	Expensivetoprocessligninduetoits structure and chemistry

Source: Adapted from Det Norske Veritas, "LNG as Marine Fuel", https://www.dnv.com/maritime/insights/topics/lng-as-marine-fuel/index.html,accessedSeptember2022;U.S. DepartmentofEnergy,"LiquifiedNaturalGas:UnderstandingtheBasicFacts"(PDFfile),downloadedfrom

U.S.DepartmentofEnergywebsite,https://www.energy.gov/sites/prod/files/2013/04/f0/LNG_primerupd.pdf, accessedSeptember2022;WilliamAlanReinsch,"Hydrogen:TheKeytoDecarbonizingtheGlobalShipping Industry?" Center for Strategic & International Studies, April 13, 2021, https://www.csis.org/analysis/hydrogen-key-decarbonizing-global-shipping-industry, accessed September 2022; International Energy Agency, "Bioenergy", https://www.iea.org/fuels-and-technologies/bioenergy, accessed September 2022; Dominik Englert, Andrew Losos, Carlo Raucciand Tristan Smith, "The Potential of Zero-Carbon Bunker Fuels in Developing Countries" (PDF file), World Bank Group, April 15, 2021, https://openknowledge.worldbank.org/handle/10986/35435, accessed September 2022; International Energy Agency, "International Shipping", https://www.iea.org/reports/international-shipping, accessed September 2022; Maritha Arcos, "Biogas - The Road to Fossil-Free Shipping?", https://wallenius-sol.com/en/enabler- magazine/biogas-road-fossil-free-shipping, Wallenius Sol AB, October 6, 2021, accessed October 2022; Callum Sinclair and Charlotte Bucchioni, "Feature: Biomethanol Offers Renewable Fuel Alternative", S&P Global, April 28, 2021, https://www.spglobal.com/commodityinsights/en/market-insights/topics/appec, accessed October 2022; International Energy Agency, "An Introduction to Biogas and Biomethane", https://www.iea.org/reports/outlook-for-biogas-and-biomethane-prospects-for-organic-growth/an-introduction-to-biogas-and-biomethane, accessed October 2022. See footnote 3 regarding all GHG emissions data used in this case.

Notes: * LNGconsistedofbetween85% and95%methane,apotentGHG.

**Conventionalhydrogenproductionemitted830millionmetrictonsofCO2eachyear.Instead, hydrogen produced by electrolysis emitted close to no CO2.

***In2020bio-fuelsaccountedforonly0.1%offinalenergyconsumptionininternationalshipping. This was projected to increase to two percent by 2030.

EXHIBIT9:BHATTIANDMT.TOURMALINE

Source:BHP

ANSWER ALL THE BELOW QUESTION AFTER READING THE ABOVE CASE STUDY:

QUESTION 1

a) Using the concepts of organizational culture and resistance to change, evaluate the role of culture in either facilitating or hindering the adoption of LNG dual-fueled vessels at BHP.

b) Compare and contrast the concepts of transformational and transactional leadership in the context of BHP's decarbonization efforts. Explain how each style of leadership could impact employee motivation and change acceptance.

QUESTION 2

a) Apply the Force Field Analysis model to the case of BHP's decarbonization efforts. Identify and analyse the driving and restraining forces that impact the successful implementation of LNG dual-fueled vessels.

b) Discuss the role of leadership in promoting a positive emotional response among employees towards the change. Utilize emotional intelligence theories to explain how leaders can effectively manage emotions during times of change.