Newbuilds returning to LNG amid green methanol shortages

The World Economic Forum estimates that since 90% of global trade occurs in the ocean, seagoing boats are responsible for nearly 3% of global greenhouse gas emissions. Although there are differing views on how to do this, the shipping industry is committed to stepping up its efforts to reach the Global Maritime Forum’s aim of reducing the use of fossil fuels by 2050. The CEOs of the five biggest maritime corporations jointly announced at COP28 that they wanted deadlines for halting orders for newbuilds that use only fossil fuels. The question of what to do next remains.

According to reports, shipping corporations have signed agreements for methanol-capable newbuilds and formed partnerships to source methanol as part of their attempts to create a more sustainable future. However, there are currently barriers to this shift to green methanol, mostly due to problems with the alternative fuel’s availability.

The main issue with the supply of green methanol is that it is a fossil fuel in and of itself and must be transformed into the “green” kind, which is produced from renewable energy sources or biological waste and then mixed with CO2 that has been captured to eliminate the carbon atom from the molecule. Biological feedstock, cost-competitive renewable energy, and the electrolyzers needed to convert them into fuel are still in great demand, nevertheless, particularly at a price that is still economical and practical for shipping businesses. Supply chains have been affected in a cascading manner. For instance, according to Lloyd’s List, production technology issues are still plaguing China’s green methanol projects, with deliveries scheduled for 2024. The delivery have not been completed.

This effectively means that current concerns over the availability of green methanol have hampered the shipping industry’s green initiatives. Shipowners may be eager to cut carbon emissions, but they are unable to do so with their existing shipbuilding orders on hold because to concerns over the supply of green methanol. Shipping corporations have become risk averse and placed orders to build LNG-fueled containerships, putting stability in fuel supply and access ahead of their commitment to green fuel, as a result of the delayed production and supply of green methanol and the uncertainty surrounding shipping carbon rates. Furthermore, this move to LNG-powered ships is probably unsustainable. The supply of LNG is limited, just like any other natural resource, therefore shipowners may have comparable problems.

The feasibility and availability of using and acquiring green methanol are issues for shipping companies. Shipping giants that had earlier pledged to steer clear of LNG-powered vessels are now placing orders for them, deterring them from fully investing in the future of green methanol. This change is further evidenced by recent ship order data published by TradeWinds, which shows that 109 LNG-capable boats had already been acquired by June 2024, while orders for green methanol-fueled vessels had declined this year.

Given their nature and the time required to complete them, the majority of the vessels being ordered now won’t be operational until 2026, or even 2027 and 2028. This will impede the shipping sector’s progress toward achieving net zero. However, the industry’s ESG objectives and 2050 ambitions need not be significantly impacted if worries about the supply of green methanol can be promptly and effectively resolved.