Green Methanol in Shipping: A Long and Uncertain Voyage

As the global shipping industry takes a more serious approach to decarbonization, green methanol, particularly hydrogen-derived e-methanol, is often cited as a future low-carbon alternative to fossil fuel bunkers, despite ongoing doubts about its commercial viability. ?This note discusses the industry’s low-carbon fuel options, the current state of the global shipping fuel mix, and the steps required to make green methanol competitive.

Regulatory Action Runs Ahead of Commercial Incentives ?

With growing policy efforts in the EU and elsewhere to decarbonize the shipping industry, green methanol—this mostly refers e-methanol but also biomethanol—is gaining attention as a sustainable alternative for marine fuel oil.? In the most ambitious shipping climate program yet, the EU’s FuelEU Maritime regulation aims to reduce the GHG intensity of energy on board ships calling at European ports by up to 80% by 2050, starting with a 2% reduction in 2025 when the EU ETS will also begin to cover shipping.? The IMO, the UN’s shipping regulator, meanwhile has set a net-zero target for 2050 (30% by 2030) and is considering a global carbon price mechanism, with a likely adoption in 2027.? If approved by member countries next year, this global carbon levy would be the first of its kind.?

In China, policy guidelines and legal work, such as the recently passed Renewable Energy Law, acknowledge the importance of green methanol and ammonia as low-carbon shipping fuels, but have not yet set any quantitative targets.? Initiatives at the local level go further: Shanghai launched a Green Shipping Industry Alliance earlier this year and intends to become a hub for the trading, bunkering, and certifying of sustainable marine fuels.? The municipality hopes to secure the supply of at least 1 MTPA of green fuels by 2030.? Chinese SOEs have also started to look at green methanol: Shipping giant COSCO leads a group of companies that plan to set up a pilot 0.2 MTPA e-methanol supply chain to support several green fuel corridors along China’s coast.

The multi-agency push for decarbonizing shipping has elicited mixed reactions across affected industries. ?On one hand, aspiring producers of green H2 and its derivatives are hopeful of the sizeable, long-term demand that this decarbonization mandate could generate for green methanol and ammonia.? A lack of scalable demand applications that stand a chance of one day becoming commercially viable without heavy subsidization has troubled green H2 investors for years.? In 2024, several announced H2 projects saw delays and cancellations as the initial H2 hype has been replaced by a more sobering mood. ??rsted, for example, stopped its Swedish e-methanol project as it couldn’t find buyers willing to commit to long-term offtake agreements. ?However, many other players in the industry, particularly in China, have their hopes pinned on e-methanol bunker use eventually taking off in the coming years.

On the other hand, as the IMO decision on the 2027 carbon levy approaches and the EU ETS inclusion kicks in next year, ship owners and ports are concerned about the sizeable investments required to upgrade fleets and infrastructure to ensure compliant emission levels. ?Ironically, while H2 suppliers worry about future demand, many ship owners are concerned about the adequacy and cost of future fuel supplies.? This paradox hints to poor policy coordination and supply planning, especially on the international level. ?

Already today, conventional (grey) methanol and LNG are the most expensive bunkering options. ?Between Sep-Nov 2024, they exceeded the price of very low sulfur fuel oil (VLSFO) at Rotterdam by 35% and 20%, respectively (see chart). ?In Q4 so far, conventional methanol bunkers even topped the price of biofuel blends.? E-methanol is estimated to initially cost four times the price of VLSFO.

Green Methanol is Just One of Several Alternative Low-Carbon Options?

By now, close to 50 methanol dual-fuel ships (capable of using methanol and fuel oil) are in operation, with another 520 on order. ?Maersk, the world’s second-largest container fleet operator, which aims to move 25% of its ocean cargo with green fuels by 2030, has ordered the most methanol vessels (25). ?Other buyers range from China’s COSCO to Disney Cruise Line. ?However, even if the current orders were to grow fivefold, they would still represent only a modest fraction of the global civilian fleet—approximately 110,000 vessels (of size > 100 DWT), including some 50,000 large container ships, bulkers, and tankers responsible for most freight activity.

Moreover, green methanol isn’t the only contender in the low-carbon arena. ?LNG (conventional and bio-methane), ammonia, small nuclear reactors (SMRs, already deployed in icebreakers and submarines), biodiesel, and even wind-assisted propulsion (tests suggest 15–30% fuel savings) all compete as alternatives. ?Fleet owners, being technology agnostic, will experiment with all available solutions and eventually settle on the most affordable and least disruptive ones. ?Minimizing disruption essentially requires a stable future supply of ships and fuels, as well as the ability to retrofit existing vessels. ?Retrofitability is especially crucial, as any downtime in a shipyard equates to lost business.

Whether retrofitting or newbuilds, there are already signs of capacity bottlenecks at shipyards, even with the currently still modest order numbers. ?Waiting times for a slot at first-tier yards—of which there are ~100, who can build low-carbon vessels—have doubled from two to four years. ?Construction costs have also risen sharply (+40% since 2020).? Retrofitting of the remaining 220 lower-tier yards to produce low-carbon ships is often constrained by high investment costs and a shortage of specialized personnel.

When technological solutions become too expensive, slow steaming remains an option. According to BRS Shipbrokers, reducing the global fleet’s service speed by 20% could lower emissions by as much as 50%. ?However, in a “just-in-time” global economy where clients demand fast delivery, any ship owner adopting this approach unilaterally would risk losing business to faster competitors. ?Throttling service speeds would require a collective mandate from the IMO, accompanied by proper monitoring and enforcement.

LNG Has Taken the Lead for Now

Over the next decade, ship owners will likely trial different propulsion options and gradually diversify their fleets, potentially even combining multiple approaches on a single ship—such as a dual-fuel engine paired with wind propulsion and speed restrictions. ?However, the current industry consensus suggests that by the 2040s and beyond, the fuel mix will largely consist of H2-based fuels (e-methanol, e-ammonia) and biofuels (biomethane, biodiesel, biomethanol).? In a meta-analysis of various fuel mix scenarios, Lloyd’s Register reported the projected 2050 fuel share of green methanol at 13–17% (two thirds of this being e-methanol), while LNG accounted for 10–37%, with the remainder primarily consisting of ammonia and biodiesel (see chart).

Currently, LNG appears to be leading the market, with newly ordered LNG vessels making up 55% of all orders placed between January 2023 and November 2024. ?Maersk, which had already invested in methanol vessels, opted for LNG dual-fuel propulsion in its latest order of 20 ships. ?

Of course, the key reason for LNG’s popularity is its relative cost advantage over methanol. ?Biomethane LNG currently costs around $20-$30/GJ, while biomethanol costs $25-$45/GJ and e-methanol is forecast to cost $30-$60/GJ by 2030 (depending largely on whether its CO2 is derived from biogenic sources or direct air capture). ?E-ammonia prices are expected to be similar to e-methanol. ?Additionally, LNG vessels’ flexibility to switch between conventional and green LNG allows for a gradual transition to green fuels without retrofitting costs. ?While methanol vessels offer a similar dual-fuel advantage, conventional LNG propulsion emits ~20% less GHG than conventional methanol, i.e., even grey LNG has a carbon advantage not just against oil but also grey methanol.

Infrastructure investments also favor LNG bunkers. ?Nearly 200 ports worldwide now offer LNG bunkering facilities, with an additional 80 ports currently developing such infrastructure. ?In contrast, methanol bunkering is available at just 30 ports, and it wasn’t until 2023 that the first port (Gothenburg) launched a regulatory framework for methanol fueling. ?Similar to the relationship between EV adoption and the availability of public chargers, ship owners gravitate toward LNG because of its widespread availability, while ports prioritize LNG due to its strong demand.

Only High Taxation of Carbon Can Make Green Methanol Work

Several factors need to align within the same geography to make e-methanol commercially viable: a cheap green power source and water for H2 electrolysis, affordable climate-neutral CO2 (i.e., not sourced from fossil fuel burning but either biogenic or direct air capture (DAC)-based), and stable methanol demand. ?Of course, such an ideal combination, particularly when involving biogenic CO2, is rare.? Some regions in North China, such as Inner Mongolia, meet the first few conditions—cheap renewable power, water, and biogenic CO2 from agricultural waste burning—but they are far from coastal ports and would require transportation by pipeline or truck. ?The transportation costs could account for 15–25% of the fuel’s final price in Shanghai and other eastern ports.? Moreover, for this green methanol to be truly green, the transportation of the fuel will have to be carbon neutral.

Most critically, there simply isn’t enough commercially exploitable biogenic CO2 available globally to significantly impact shipping’s fossil fuel demand. A recent Deloitte study concluded that by 2050, all available biogenic CO2 would, at best, enable meeting 10% of global aviation and maritime transport fuel demand with e-methanol.? DAC is the only option to truly scale up e-methanol production, but it remains an experimental technology. ?In 2023, some 30 DAC plants together captured a mere 10 kt of CO2. ?At current costs of $500–1,000/t CO2, DAC is prohibitively expensive. ?Even with steady technological progress, most experts agree that DAC by 2050 will still cost between $250/t to $500/t.

Assuming $300/t for DAC by 2050 and a green H2 price of $24/GJ, the DAC-based e-methanol price would then be about $40/GJ, roughly four times that of VLSFO bunkers (assuming no carbon taxes and crude oil at ~$65/b in real 2024 terms).? The biogenic CO2 based methanol would be close to $30/GJ (see chart). ?In essence, only high carbon taxes, well above $200 per ton of CO2, could make e-methanol competitive against fuel oil.? The chart above gradually phases in a bunker carbon tax, starting from $50/t in 2030 and reaching $250/t by 2050. ?Even in this improbable scenario, biogenic CO2 e-methanol barely breaks even with VLSFO by 2050, and only when assuming $90/b crude oil (the upper boundary of the grey area in the chart).?

One way to advance cost parity would be to allocate shipping carbon tax revenues to subsidizing e-methanol production or consumption.? However, such subsidies would represent a very costly solution and, without an accelerated reduction in DAC costs, would lack a viable exit strategy.? On the other hand, a future breakthrough in DAC technology that lowers costs to $50/t CO2 or less could eventually transform e-methanol into a competitive and abundant bunker fuel. ????

Biomethanol is Likely to Remain a Marginal Fuel Option

Biomethanol is the second pathway for producing green methanol, derived by gasifying biomass (such as agricultural and forestry waste, as well as certain organic industrial and municipal waste) into biogas, which is then converted into methanol. ?The underlying technical process is relatively simple, but feedstock scarcity presents a significant challenge to scaling up supply. ?The issue is not so much an insufficiency of waste biomass but the lack of seasonally steady and concentrated waste sources. ?

Another challenge is competition from utilities, which will be eager to secure both biomass and biogas for low-carbon power generation. ?This creates direct competition with shipowners, who will also have to pay the premium for upgrading biogas into methanol. ?

Currently, with little actual production in place, biomethanol prices, when quoted or estimated at all, tend to be lower than those of e-methanol.? However, it is highly likely that biomethanol prices will surpass e-methanol prices once demand increases and that they will remain the most expensive methanol option in the long term. ?This expectation aligns with the consensus of most forecasts, which is also why biomethanol is consistently projected to play a marginal role—at best in the 5–10% range—in forecasts of the global bunker fuel mix.