Low-carbon methanol sees steady gains, awaits regulatory backing

This content is part of the WPC 2025 series, where we explore key themes from the 40th annual World Petrochemical Conference.

The global low-carbon methanol market is seeing steady gains in dual-fuel ships ordered, but supply remains short and pricing prohibitively high as market participants await regulatory backing to scale up production.

EU regulation

Fuel EU Maritime policy went into effect January 2025, after which carbon costs for intra-EU bunkering have more than doubled under the European Union's Emissions Trading System.

The Fuel EU Maritime framework stipulates a 2% reduction in carbon intensity of marine fuels burned in 2025, increasing to 6% in 2030, and scaling up to 80% by 2050, according to maritime classification society DNV.

In the interim, the International Maritime Organization, a United Nations body tasked with regulating the shipping industry, is set to finalize rules governing greenhouse gas emissions from marine energy in April 2025.

The IMO has aimed to cut life-cycle greenhouse gas emissions from international shipping by 20%-30% by 2030 and 70%-80% by 2040, against 2008 levels, before reaching net-zero emissions close to 2050.

Negotiations over the rules include the possibility of a global carbon levy imposed on marine fuels, ranging from $18-$150/mtCO2e.

As of March 2025, 60 countries have backed the levy, bringing the IMO near halfway to consensus, but countries such as China and Brazil remain in opposition due to the increase it would imply for international freight.

Carbon penalties put in place on the shipping industry in Europe will take time to infuse and provide the incentives required for a full transition to low-carbon fuels, said Olivier Maronneaud, global lead for methanol and plastics circularity at S&P Global Commodity Insights. "That's one of the reasons why projects are further delayed. They are not making progress."

US regulation

The 2022 Inflation Reduction act would incentivize the marine energy transition by subsidizing production of low-carbon fuels such as methanol and ammonia, said Eirik Ovrum, DNV's principal consultant and maritime forecaster.

Though the IRA could be repealed due to political partisanship in the US, market participants expect a full repeal is unlikely, owing to the difficulty in passing such a repeal through the legislative process, as well as to a substantial portion of IRA funding going to Republican districts.

"The IRA was voted as a budget act," said Vincent Clerc, CEO of A.P. Moller Maersk, at the latest panel of the World Economic Forum at Davos.

"A budget act needs 60 votes in the Senate, not 50. Until you have 60 senators that think the IRA is a bad idea -- when +70% of the money is invested in red states -- you need to find 60 senators that want to undo this act," Clerc said.

North America is set to account for 38,000 mt or 7% of global supply of eMethanol in 2028, rising to 399,000 mt or 33% in 2030, according to analysts from S&P Global Commodity Insights.

Short supply

For the moment, however, low-carbon methanol production remains low in the Atlantic basin, where a 42,000 mt/year Mitsui-European Energy joint venture in Denmark is the only active producer.

Over the course of 2024 eMethanol projects put forward by Orsted and Sommerfol were both scrapped due to economic considerations.

"We remain in the situation where you see a long list of projects and little realization of them," Maronneaud said.

Until more projects reach a final investment decision, market participants will have to wait and see how much biomethanol or eMethanol can be produced, and at what prices they can be delivered at, Ovrum said.

High energy costs in Europe may prevent eMethanol from being produced altogether, said Ovrum, attributing this in part to the failure of projects in Sweden.

Alternatively, the scaling up of biomethanol supply would make methanol as a marine fuel more affordable, Ovrum said, who expects it will be the first to come.

However, biomethanol would have to be cheaper than biodiesel in order for shipowners to consider long-term offtake agreements.

Pricing dilemma

Spot indications for US biomethanol were heard from $1,200-$1,500/mt FOB as of January, according to a supplier.

Platts assessed 100% methanol marine fuel at $1,060/mt delivered Houston on March 10, steady on the day, at a premium of $531/mt to 20 MMF, the 20% methanol marine fuel blend.

Though low-carbon methanol is not yet a traded commodity, buying and selling indications remain at an unfeasibly wide spread.

Selling ideas for eMethanol were heard at $1,650/mt FOB USG as of Jan. 27, according to a seller, with those prices said to be on the low end and "at the factory," prior to logistics cost and added carbon intensity.

On the buying side, shipowners are hoping to secure contracts at $500/mt FOB China, with buying ideas around $600/mt considered on the high end, leaving long-term offtake agreements at a standstill.

Until that price differential can be reconciled, producers are unlikely to commit to the costly process of scaling up production, just as shipowners are unlikely to commit to running their fleets on a fuel that does not yet exist.

China in the lead

The leader in eMethanol production and renewable energy remains China, which produced 22% more renewable electricity in the first half of 2024, according to government data. Renewable electricity accounted for 35.1% of the country's total energy consumption, the data showed.

China is set to account for almost 60% of all renewable capacity between 2025-2030, according to an International Energy Agency forecast.

Project timelines in China tend to be shorter than in Europe or the US, according to Carbon Recycling International, as companies are more quickly able to reach final investment decisions due to shorter timelines for permitting and construction.

China is the player that seems to be most advanced, Maronneaud said. Low-carbon methanol production in Europe has seen "some traction, though challenges remain," while progress in the US has been lagging behind, he added.

Commodity Insights analysts expect China's eMethanol production to grow from 3,000 mt in 2024 to 578,000 mt in 2030, which would make China the largest global eMethanol producer as well as home to 48% of the world's total capacity.

In November 2024, German container line Hapag-Lloyd agreed to purchase 250,000 mt/year of eMethanol from Chinese producer Goldwind to secure low-carbon marine fuel supply for its ambitious decarbonization targets.

A.P. Moller-Maersk, meanwhile, has cut its forecast of sustainable marine fuels in February, saying it expects a 10%-20% share of low-carbon fuels by 2030, down from the 25% expected in 2021.

Multi-fuel future

While newbuild orderbooks indicate a near-term future run on LNG, market participants say a multi-fuel future is the most likely scenario with carbon penalties continuing to escalate, but a multi-fuel future could pose other difficulties, according to Maronneaud.

"An industry is efficient because it runs on a single product," he said, adding that bunkering is, by nature, a very efficient industry.

Thus, even if the future of bunkering will be multi-fuel, this could translate to a "more complex and less efficient bunkering industry," Maronneaud said.