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Maersk hedges on LNG amid methanol’s bumpy road

At least 12 dual-fuel ‘methane’ vessels expected to be announced by Maersk in August

Development of the Danish giant’s green methanol projects in China has been far from smooth. The wavering between different alternative fuels is likely to reoccur on the industry’s future decarbonisation path, highlighting the significant uncertainties shipowners face in their green transition

THE slower-than-expected production of green methanol and uncertainty surrounding shipping carbon prices are said to be behind Maersk’s decision to hedge its bets on alternative fuels by investing in LNG.

The move by the Danish shipping giant, seen as a leader in industry decarbonisation, also reflects the unanticipated twists in the road shipowners face in the energy transition.

News has been circulating in the market since last month that Maersk, long fixated on methanol as a marine fuel, is in talks with tonnage providers including Seaspan to build large LNG-fuelled containerships — a possible pivot in fuel planning.

Sources close to the deal now confirm that an order of at least 12 dual-fuel ‘methane’ vessels is expected to be announced in August, although details on the exact type and ‘green’ credentials remain unclear.

LNG is primarily composed of methane, a greenhouse gas 80 times more potent than carbon dioxide.

The move was said to be essentially a short-term hedge bet. Maersk does not want to be too far off from where its competitors are and now feels the need for some exposure in the LNG fuel market to navigate the upcoming period of regulatory uncertainty at the International Maritime Organization and the European Commission.

The so-called mid-term measures — which include the establishment of a global fuel standard and an economic pricing mechanism for ship’s greenhouse gas emissions — are being finalised at the IMO and expected for adoption next year.

But developed and developing countries, as well as some small island nations, remain at odds over whether to impose a universal carbon levy on global shipping, how much to charge, or to take a more moderate approach instead.

Concerns exist that eventual carbon prices set by the UN agency may not be ambitious enough to justify high green methanol costs, said a class society source.

“So Maersk’s move into LNG fuel may seem awkward but is ultimately about costs and economics,” the person said.

Compared with grey methanol, LNG offers more CO2 reduction for shipowners and has far greater energy density as a more efficient fuel (even though methane slip remains a big unsolved issue).

Greener bio-methanol and carbon-neutral e-methanol made with renewables, on the other hand, are expensive and scarce. Factoring in energy density, bio-methanol is now three times the cost of low-sulphur fuel oil prices.

The industry had hoped that expanding production would lower costs, but progress has been uneven.

Flaky projections 

Maersk’s green methanol projects in China, for example, face challenges such as overpromising suppliers and production technology difficulties, a company manager told a shipping forum in Shanghai this week.

“Two years ago, potential green methanol suppliers were telling us about 2024 deliveries, but now no one can deliver,” said Maersk’s China decarbonisation business development manager Xie Wenxuan.

He said China had advantages in producing alternative fuels thanks to its robust renewables industry and supportive policies, but barriers such as technical issues and costs had slowed progress.

Last November, Maersk signed a 500,000 tonne annual bio- and e-methanol offtake deal with Chinese producer Goldwind. First deliveries are expected in 2026 to power the carrier’s first 12 dual-fuel methanol boxships.

“Now all eyes are on Goldwind’s pilot production, with other similar projects being slower,” said Danny Qi from Albamen Capital, an infrastructure fund with deep roots in the Chinese clean energy industry.

He said these “green methanol” plants are under pressure to meet expectations, with challenges such as the complexity of biomass gasification technology and high project acquisition costs.

According to Qi, a new energy project in China faces higher development cost than before. The non-technical cost of a wind or solar project can account for about 10%-25% of the total investment.

This is partly due to cash-strapped local governments imposing hefty fees on renewables projects to raise revenue amid a property downturn, said an industry expert who declined to be named.

Shipping could fall 3m tonnes of methanol short of the 14m tonnes it will need for dual-fuel ships by 2028, according to a new report by Bloomberg New Energy Finance.

It noted that as of early 2024, low-carbon methanol production capacity is negligible, accounting for less than 1% of the current 110m tonnes of methanol production.

While Maersk has dozens of green methanol ventures in its pipeline, uncertainty persists about how many will materialise and reach pilot production, Xie said.

But Maersk maintains methanol is a key future bunker fuel, he stressed. “Our main focus now is definitely still methanol, and we remain confident it will be the primary fuel powering green shipping before 2030.”

There is no silver bullet to shipping’s decarbonisation dilemma. This was the message Pacific International Lines chairman SS Teo sent to the audience at a recent 40th anniversary event of the China P&I Club. It is also a consensus shared by many in the industry.

Unlike Maersk, the Singapore-based mid-sized carrier ordered a series of LNG dual-fuel, ammonia-ready 14,000 teu and 8,000 teu containerships in China back in 2022.

But it has not yet embarked on methanol, which started replacing the super-chilled gas fuel and became the mainstream new fuel choice for shipowners ordering newbuildings in 2023.

Teo noticed shipowner preferences appeared to be swinging back lately.

In the eyes of Drewry managing director Tim Power, such oscillation between different alternative fuels will be a recurring theme on shipping’s bumpy decarbonisation road ahead.

Shipowners make strong green commitments but have to be practical when ordering today, he said. “So, it is perfectly logical for Maersk to go with LNG, given the circumstances.”

While Maersk’s Xie and PIL’s Teo cited ammonia’s potential as a zero-emission fuel of the future, Power dismissed it as too toxic and risky.

He also warned that making shipping truly green might challenge the resilience and flexibility of the industry, whose importance to global trade and supply chains has been demonstrated both in the past and today.

Practical reality 

This is because the cheap, universally available hydrocarbon fuel is the cornerstone of that flexibility.

“Let us imagine a hypothetical regulatory environment, under which you were only allowed to use zero-carbon fuel and there was hardly any zero-carbon fuel,” he said. “That is the end of shipping.”

The remarks reflect one of the biggest concerns in shipping’s green transition: The fuel availability in a multi-fuel future.

Seaspan chairman Bing Chen recently argued that one future fuel will rule them all, after trial and error with multiple alternatives.

And mainstream ports could only offer a standardised bunkering system with one fuel, he added.

Yet the process would be fraught with inefficiency and waste, owing to “everyone trying out different options with limited resources separately”.

While the IMO is adopting a fuel-agnostic framework in its green ambition, Chen hoped authoritative institutions would lead the industry out of confusion and identify one fuel path to achieve scale and establish demand.

“Without economies of scale there is no way to spur investment, let alone achieve cost reductions,” he said.

Additional reporting by Carol Yang

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