Exploring the Use of Environmentally-Friendly Methanol by Shipping Industry to Reduce Emissions Despite Supply Challenges

SINGAPORE/COPENHAGEN, Aug 21 - A refreshing wave of change is sweeping through the container shipping industry as eco-conscious shippers are embracing vessels powered by methanol to slash greenhouse gas emissions. While the journey towards widespread adoption of renewable methanol is underway, it's important to note that it will take a little time for supply to catch up with the growing demand and for costs to align, according to industry leaders.

Embarking on this green voyage, A.P. Moller-Maersk's pioneering methanol-fueled container ship set sail from South Korea in July. The forecast for the future is indeed bright, with consultancy DNV predicting that the count of such vessels will soar beyond 200 by 2028, a substantial leap from the 30 in operation this year.

The frontrunners in this sustainable shipping revolution include industry giants like A.P. Moller-Maersk, CMA CGM, and XpressFeeders, which dominate the order books. These maritime behemoths transport goods for globally recognized brands such as Apple, Nike, Adidas, and Walmart. Their focus on methanol, along with exploration of other cutting-edge alternatives like ammonia, underscores their commitment to achieving emission reduction targets for themselves and their esteemed clients.

A.P. Moller-Maersk reported that methanol-powered ships with dual-fuel capabilities currently carry a price tag 10% to 12% higher than conventional vessels. Yet, optimism prevails as this cost disparity is expected to dwindle over time with the economies of scale kicking in.

However, it's worth acknowledging the challenges that come along with such a transformation. The primary hurdle lies in ensuring a steady and ample fuel supply. The complete eradication of emissions might not be entirely feasible, but the goal remains to drastically minimize their impact.

Emma Mazhari, Maersk's head of energy markets, emphasized, "The real cost challenge remains on the fuel supply side and the need to rapidly build production globally and at scale; and the associated fuel infrastructure."

Conventional methanol already presents significant improvements, emitting up to 80% fewer nitrogen oxides and nearly 99% less sulfur oxide compared to fuel oil. However, the game-changer lies in using methanol derived from renewable sources—whether from biomass or captured carbon and hydrogen from renewable power. This shift has the potential to curtail carbon dioxide emissions by an impressive 60% to 95% when measured against traditional fuels, as highlighted by the Methanol Institute.

Yet, the road to fully sustainable practices is dotted with some hurdles. The production of green methanol, originating from biomass or captured carbon and hydrogen from renewable sources, remains relatively scarce and at least twice as expensive as its fossil fuel-based counterpart. Additionally, the distance between renewable fuel production hubs and bunkering ports can lead to increased costs in terms of both finances and emissions due to transportation.

"It still has a 'C' (carbon) in its formula, so the fuel that remains is not zero carbon," quipped Rashpal Singh Bhatti, BHP's vice president for maritime and supply chain excellence, in reference to conventional methanol. He firmly stated that the use of methanol produced from fossil fuel sources is a futile endeavor in terms of emission reduction.

Bhatti added, "Ultimately, we're trying to find the ubiquitous source that has good decarbonization potential."

The appetite for methanol remains substantial, with global demand standing at 100 million tonnes annually. For context, a container ship with a capacity of 16,000 twenty-foot equivalent units (TEUs) consumes around 30,000 to 40,000 tonnes per year, as outlined by the Methanol Institute.

While the demand for this eco-friendly fuel is set to increase significantly, current bio-methanol production contributes to less than 1% of the global output. This reality implies that for now, ships largely rely on more traditional fuels.

Peter Lye, global head of shipping at Anglo American, pointed out, "The main issue with methanol at this stage is increasing access and the scale of green production." Though they're closely monitoring developments, the company is yet to place orders for such ships.

The silver lining in this transition is that investments in methanol-fueled vessels are expected to catalyze renewable fuel production and ultimately bring costs down. According to Greg Dolan, CEO of the Methanol Institute, "We are tracking more than 90 projects globally looking to produce bio-methanol or e-methanol, with total announced anticipated production capacity of 8 million tonnes by 2027." He highlighted that the size of production plants has grown significantly, indicating the industry's commitment to scaling up sustainable practices.

OCI, a Netherlands-based company, played a pivotal role by supplying green methanol to Maersk's inaugural ship. The confidence boost garnered from these orders is inspiring suppliers to propel their green methanol projects forward, even though production levels remain modest.

Most green methanol projects are currently concentrated in China, northern Europe, and North America—areas distant from major bunker hubs like Singapore and the United Arab Emirates. This geographical gap presents logistical challenges.

Anticipating a brighter future, Anita Gajadhar, Proman's executive director for marketing, logistics, and shipping, projected, "Costs will come down as production increases over the next 15-to-20 years from less than 1% of output now." She pointed out the untapped potential of countries like Chile and Argentina in contributing to green methanol production.

Across Asia, South Korea and China are gearing up to boost their green methanol capacity. Gajadhar noted, "Strategically this makes sense given the available methanol storage volumes and the port's proximity to the major Asian dockyards handling the majority of methanol newbuild orders." She also highlighted the growing demand for green methanol at several Chinese ports.

As part of its commitment to sustainability, Maersk has set a target to employ low-emission fuels for a quarter of its shipments by 2030. This commitment reflects the industry's collective effort to create a brighter and cleaner future for global shipping.

Source : Reuters (Reporting by Jeslyn Lerh and Jacob Gronholt-Pedersen)