Petroleum Supply & Shipping since 2015
How are brokers helping to drive the fuelling transition?
It is undisputable that we need to drive a lower-carbon future and meet the IMO’s 2050 net-zero target, but the procrastination we’re witnessing around fuel choice is delaying progress. Informed brokers can help to drive momentum and influence the direction of travel towards a more sustainable future, while also meeting commercial objectives.
Two years ago, we questioned the sustainability of a rapid e-fuels pathway for shipping. Our position hasn’t changed, but we’ve watched the industry yo-yo between fossil-based alternative fuels and e-fuels. Anchored in energy economics (using renewable energy most efficiently) and our pragmatic view, we argued that LNG has an important role to play in the fuel transition short to medium term, while e-fuel is likely to be part of a longer-term solution. In this piece we will focus more on the commercial development needed to successfully transition to these low carbon molecules, rather than the physical characteristics and arguments.
“Fast forward two years, there has been a lot of development and, as many will argue, a lot of missing development.”
Let’s begin with methanol. The strong growth in methanol dual-fuel (DF) vessel contracting, first led by Maersk in 2021, continued well into 2023, emerging as one of the leading DF options. It represented 12%1 of contracted gross tonnage (GT) over 5,000 GT in 2023. This growth has been supported by a relatively low capex premium on DF engines, along with a promising supply-side outlook, as new projects continue to be announced. As a result, methanol DF vessel contracting grew in prominence.
While we do not intend to fuel the “LNG vs Methanol vs Ammonia” debate – since, as brokers we remain fuel-agnostic and believe that all fuels will play a role in the future – it’s clear that LNG and methanol have been competing closely across principals’ desks over the past couple of years. This is evident in the sharp decline in LNG dual-fuel vessel contracting in 2023 dropping from 28% in 2022 to 14.7% of contracted GT above 5,000 GT, largely due to methanol’s growing popularity. Some of this decline, however, can also be attributed to a surge in gas prices following the sanctions on Russian gas.
But in late 2023, we saw the first sign of LNG regaining momentum when liner giant CMA CGM changed an order of eight 9,200 TEU vessels from methanol DF to LNG DF2. While this news passed somewhat quietly, a similar move by Danish competitor Maersk did not. Maersk surprised the industry by revealing plans to invest in LNG DF vessels3. This diversification from previous commitments was justified with the rationale that betting on just one fuel would be risky. Instead their portfolio mix would include the methane molecule, although emphasising that focus is on bio-LNG and not on fossil LNG. Our 2022 argument supports the shift, and like Maersk, points out a more fundamental challenge in the fuel transition: the limited availability of green methanol. They
emphasised the need to achieve their decarbonisation goals in a commercially competitive way. In other words, while several e-methanol projects are approaching final investment decisions (FIDs), there remains a shortage of green methanol at acceptable prices.
Contact Info
- Indonesia Stock Exchange Building, Tower 1, Level 3 Suite 304, SCBD, Jl. Jend. Sudirman Kav 52-53, Jakarta, Indonesia - 12190
- +62-21-5010-6260 ext 2080
- +62-811-109-031
- info@persima.co.id
- Mon - Sat 09:00 - 17:00
- Indonesia Stock Exchange Building, Tower 1, Level 3 Suite 304, SCBD, Jl. Jend. Sudirman Kav 52-53, Jakarta, Indonesia - 12190
- +62-21-5010-6260 ext 2080
- +62-811-109-031
- info@persima.co.id
- Mon - Sat 09:00 - 16:30
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