LNG is not the marine fuel of the future, it is the marine fuel of today [Global Gas Perspectives]
It would be great to jump forward to the end solution – fully sustainable, affordable marine fuels with no emissions either from their production or use. But, like Rome, energy transitions are not built in a day, even if pushed hard by regulation.
When emergent technologies compete, there is uncertainty as to which will be the ultimate winner. Economies of scale suggest there will be only one, although this too is far from certain.
A multi-fuel future for the shipping industry is possible. Indeed, it is becoming fact in the transition period, as different emergent technologies vie for supremacy. It is possible that constraints on scale limit the lowest cost fuels and that multiple fuels become a permanent feature of the shipping industry.
This possibility does not make decision making any easier.
Pragmatism on display
Whatever the marine fuel of the future proves to be, ship owners have to make decisions now. Danish shipping giant Maersk’s choice to opt for a mix of LNG and methanol dual-fuel vessels in the next step of its fleet renewal marks a new note of pragmatism. Up until now, the company has been the industry’s foremost champion of a methanol-fuelled future.
But Maersk appears less certain today than yesterday. Once the order is delivered, about 25% of Maersk’s fleet will have dual-fuel engines. The planned orders total 50-60 vessels both owned and time-chartered. Maersk says the exact split of propulsion technologies will be determined by the future regulatory framework and green fuels supply.
Fuel cost will be a consideration. At present, methanol is significantly more expensive than biofuel, conventional fuels or LNG. According to Norwegian classification society DNV, methanol was the most expensive marine fuel in July and more than twice the price of LNG on a $/t MGO equivalent basis.
However, no-one expects methanol to be cheap right away, it will take time to scale production up and reduce costs in the process. But big questions present themselves. How long will it take to produce sufficient volumes at an affordable price? Moreover, will this be achieved in tandem with tightening emissions regulations, and on a timescale that climate change mitigation demands?
Chinese fuel supply
Methanol has certainly gained ground as an alternative fuel in recent years. But Maersk has had to go a long way to secure fuel. In November, the company reached an offtake agreement with China’s Goldwind, better known for manufacturing wind turbines, for annual volumes of 500,000 tonnes of methanol to service the first of 12 large methanol-enabled vessels the shipping company has ordered.
The fuel will be a mix of green bio-methanol and e-methanol, produced at a new production facility in northeast China. Production is expected to begin in 2026.
Bio-methanol is produced from biomass either by gasification or pyrolysis. E-methanol combines green hydrogen produced by electrolysis using renewable power and carbon dioxide, which can be captured or sourced from biogas, biomass, waste or sewage sludge. These are energy intensive processes, even if the energy consumed is renewable.
Industry players have warned that the enthusiasm for methanol-powered vessels has jumped ahead of the ability to supply green methanol. Low carbon methanol – i.e. methanol produced from fossil fuels plus Carbon Capture and Storage – might have to fill the gap.
According to Norwegian Classification Society DNV, the number of methanol-capable ships in operation in 2022 was 24, rising to 29 in 2023, 62 this year and 116 by 2025. Of contracts for newbuilds ships in the past 12 months, 8% were for methanol, overtaking orders for LNG-fuelled ships, which captured only 6% of the newbuild market.
Yet the production of both green and low carbon methanol is in its infancy and expensive. The risk is that most of these ships will end up running on conventional fuels (they are dual-fuel remember) for reasons either of cost or a lack of green fuel.
Hydrogen-based fuels face a long road to lower costs
The dilemma is similar to that governing hydrogen. The latter can be a more sustainable alternative, but green hydrogen is as yet neither cost competitive nor produced at scale.
Opting for LNG recognises that the fuel is available today. LNG-fuelled ships make up the bulk of the alternative fuel fleet. According to DNV, by 2027, there will be more than 1,000 LNG-fuelled vessels in operation, up from just 123 in 2017, not including LNG Carriers.
The attraction of LNG is that it is affordable and delivers immediate emissions reductions compared with conventional marine fuels. In addition to reduced carbon emissions at the point of combustion, it cuts nitrogen oxide emissions by 85-90% and almost completely eliminates sulphur oxide emissions.
The LNG bunker fleet is expected to reach 59 this year with a further 22 on order. The production side is expanding rapidly, owing to growth in liquefaction capacity in the US and Qatar. The number of ports offering LNG refuelling is expected to reach 235 by 2025 from 185 in January 2023. According to consultants Rystad Energy, last year, LNG bunkering hit a record high with 4.7mn m3 delivered globally, up 62%, compared with 2022. Rystad suggests that LNG bunker sales this year could surpass 7mn m3.
By expanding the use of bio-LNG it also offers further reductions in emissions, as would the use of synthetic methane, a future possibility on a par with methanol or ammonia. It too can be produced, drawing on the same inputs as methanol – green hydrogen and recycled or captured carbon -- but not competitively yet at scale.
So, what engine choice should shipowners make?
It is not easy, as the average lifespan of a vessel is between 30-50 years. Maersk understandably does not want to renew its fleet with vessels which might be regulated out of operation before the end of their useful lives. But does a shipowner choose ships with engines that might not use their alternative fuel capabilities for decades, or ones that can use them today, even if they are not the perfect solution?