According to the World Economic Forum, with around 90% of all trade being ocean-based, close to 3% of the world’s greenhouse gas footprint comes from seagoing vessels. The shipping industry is determined to accelerate its efforts to meet the Global Maritime Forum’s goal of ending fossil fuel consumption by 2050, although opinions about how to achieve this differ.
At COP28, CEOs of the five largest shipping companies made a joint declaration demanding deadlines for stopping orders of fossil fuel-only powered newbuilds. This leaves the question of what to do instead.
Part of this industry’s efforts to achieve a more sustainable future has been a commitment to switch to green methanol, with reports of shipping companies entering partnerships to source methanol and signing deals for methanol-capable newbuilds. However, this transition to green methanol is now facing obstacles, mainly because of issues with the supply of the alternative fuel.
The key challenge with the supply of green methanol is that methanol on its own is a fossil fuel and needs to be converted into the “green” variety, which is made from biological waste or renewable electricity and is then combined with captured CO2 to cancel out the carbon atom in its molecule. However, there is still a significant shortage of biological feedstock, cost-competitive renewable energy and the electrolyzers required to turn them into fuel, especially at a price that remains efficient and affordable for shipping companies. This has had a domino effect on supply chains. For example, Lloyd’s List has reported that green methanol projects in China with deliveries planned in 2024 continue to face production technology difficulties. The deliveries have not been fulfilled and the projects are encountering issues, having overpromised to suppliers.
The supply and feasibility of accessing and using green methanol is causing concern to shipping companies. Shipping giants who had initially sworn off LNG-fueled ships are deterred from fully investing in green methanol’s future and are placing orders to build vessels fueled by LNG instead. This change is further reflected in recent ship order data reported by TradeWinds, which shows that green methanol-fueled orders have slipped back this year while 109 LNG-capable vessels had already been ordered by June 2024.
In effect, this has meant that present fears over the supply of green methanol have negatively impacted the shipping industry’s efforts to go green. While shipowners may be keen to reduce carbon emissions, they cannot do so comfortably with fears about green methanol supply looming over their current shipbuilding orders. The slower production and supply of green methanol has also led to uncertainty around shipping carbon prices, causing shipping companies to become risk-averse and place orders to build LNG-fueled containerships, prioritizing stability in fuel supply and access over their commitment to green fuel.
Moreover, this switch to LNG-fueled vessels is likely not sustainable. Much like any natural resource, LNG supply is not endless and shipowners could face similar issues with LNG availability.
Most of the vessels being ordered today will only be operational in 2026 or even 2027 and 2028, given the nature and time needed to fulfill them. This will set the shipping industry back in terms of their net zero goals. However, if concerns over green methanol supply can be addressed quickly and efficiently, this need not have a significant impact on the industry’s ESG goals and 2050 targets.
Source: Reed Smith