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INTERVIEW: Opportunities for methanol bunker growth: Methanex

Highlights

Methanol has competitive opex, capex costs

The chemical has different industrial uses

Shipping market will use wide range of fuels

London — Methanol offers significant emissions savings as a bunker fuel and could carve out a sizable niche as a shipping fuel despite demands from other industrial sectors, Stuart McCall, director for business development at Canadian methanol producer Methanex, said in a recent interview.

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Methanol is a widely traded commodity and there is an existing infrastructure for its transportation, albeit limited infrastructure for bunkering.

When produced renewably it offers notable greenhouse gas savings and can be accommodated by the majority of the world shipping fleet's engines with only minor tweaks.

While methanol helps solve the issue of emissions, the question like many alternative shipping fuels is how much of the entire market they can supply. Production of methanol, largely derived from methane or coal, was around 84 million mt in 2019, McCall told S&P Global Platts.

Much of that production was spoken for by industrial users in competition with bunkers, according to methanol market sources.

"The total methanol market at the moment is significantly smaller than the size of the bunker fuel market, so 100% methanol shipping is not feasible in the short term," McCall said.

It has gained some traction as a bunker fuel, especially given that it only entered the pool of marine fuels five years ago and is now the fourth most significant bunker fuel today, McCall said.

Global oil-based bunker demand was 8.4 million b/d (429 million mt) in 2019, the International Energy Agency said in its World Energy Outlook 2020 in October. That will grow to 9.7 million b/d in 2030, the agency said.

That leaves a shortfall, even if marine fuel was the primary outlet.

Other fuels that have been touted for future use also have limited availability to spare for bunkers, so methanol is not alone in this regard, Chris Chatterton, COO of the Methanol institute said. With different fuels likely to be in use no one fuel will have to cover all bunker demand, Chatterton said.

Carbon credentials

"Methanol offers an immediate, in-sector CO2 reduction of up to 15% when compared to conventional marine fuels," McCall said. "It also offers a pathway to the use of renewable methanol which would deliver on the IMO's carbon goals for 2050 on a life cycle basis with up to 95% reduction in CO2."

The International Maritime Organization is targeting a 40% reduction in carbon intensity, that is CO2 output of the international fleet averaged out per vessel, by 2030, compared with 2008 levels. The next target is a 50% reduction of all greenhouse gases by 2050, compared with 2008 levels.

"A recent study completed by the Methanol Institute indicated that several companies are engaged in manufacturing and/or research and development for green methanol, and commercialization activities are progressing," McCall said.

Development of that will depend on how much the regulatory framework will support the growth of green fuels, he said.

Competitive costs

Modest capital expenditure and operating expenses are an advantage of methanol, McCall said. As a liquid fuel, existing on-shore bunkering facilities can be repurposed with only minor tweaks.

"Methanol could be used by any ship segment and, as a liquid fuel, by using a dual-fuel engine, you can mix with conventional marine fuels (or biodiesels) to provide an even lower cost solution and deliver on practical requirements," he said.

Platts assessed FOB Rotterdam methanol at Eur308.50/mt ($374.3/mt) on Jan. 19, with LNG bunker fuel at Rotterdam at $374.93/mt. LNG as a bunker fuel has higher associated capex costs and limited infrastructure.

Methanol sees a more pronounced discount to conventional 0.5% sulfur fuel oil, the current prevalent bunker fuel, which was assessed at Rotterdam at $425/mt delivered on Jan. 19.

Methanol has significantly higher energy density than ammonia and hydrogen, touted by many as the future fuels of choice, McCall said.

Wider picture

No single fuel will be able to provide for the whole market. For example, ammonia might serve for deep sea voyages, batteries for inland sailing and methanol for short sea journeys, Niels de Vries, chief naval architect of maritime engineering company C-Job said during the S&P Global Platts Mediterranean Bunker Fuel & Shipping conference in November.

The IEA estimates that biofuels, ammonia and hydrogen will meet more than 80% of shipping fuel needs by 2070, when the IMO is targeting a 70% reduction in carbon intensity compared with 2008 levels, and that 13% of the world's hydrogen production will be dedicated to bunkering, with ammonia the outright leader among maritime fuels.

"More than 60% of the emissions reductions in 2070 come from technologies that are not commercially available today," the IEA said in 2020.

Platts Analytics says alternative shipping fuels are still in the early stages of development and are expected to take significant time to displace oil. In Platts Analytics long-term outlook, non-petroleum marine fuels account for 11% of total bunker demand by 2040, with almost all of this accounted for by natural gas-based fuels.