China acounts for more than half of the project pipeline for renewable methanol globally. What does this mean for the EU's maritime future?
Just as you are reading this sentence, some 50,000 ships are crisscrossing the oceans around the world, carrying everything from toothbrushes to electric vehicles for tens of thousands of miles.
The vast majority of them are powered by fossil fuel, but a tiny — albeit growing — portion have taken up renewable methanol, a clean fuel that can significantly reduce the carbon dioxide (CO2) and air pollutants emitted by those vessels.
"Renewable methanol will play a key role in the immediate term as a scalable zero-emission fuel," Michael Petroni, an analyst tracking the shipping industry at the Berlin-based NGo Climate Analytics, tells EEI.
But the conversion isn’t without challenges. For one, there is a chicken-and- egg situation in establishing supply chains for renewable methanol due to the absence of a real market. China is also ahead of the rest of the world in building factories for the fuel.
But the vulnerability of the European Union (EU) may lie in the manufacturing of ships, not the fuel. Petroni expects Europe to be "heavily reliant on China" in building methanol-enabled vessels as its maritime industry sails towards its net-zero goal.
Uncharted waters
In the EU, the shipping industry's CO2 emissions have increased year-on- year since 2015, according to this year's European Maritime Transport Environmental Report. The only exception was 2020 when the pandemic held up global logistics, it says.
The emissions rise was not only driven by the growing volume of cargo, but also the longer journeys ships had to make to avoid "maritime choking points" created by conflicts, geopolitical tensions and other factors, said Maja Markovčić Kostelac, executive director of the European Maritime Safety Agency, at the report's launch in Lisbon in early February.
Renewable methanol has emerged as an attractive alternative for shipping companies as they look to decarbonise container ships, which contribute the greatest portion of CO2 emissions out of all types of vessels.
"The fuel is more ready to be adopted than other renewable options, such as ammonia and hydrogen, because it is immediately available, easy to handle and compliant with current safety requirements", Petroni says. "Plus, existing engines can be adapted to use it", he adds.
In 2021, Danish major Maersk ordered the world's first dual-fuel container ship capable of running on methanol and conventional fuel. Since then, its global competitors have followed suit.
Today, the number of methanol enabled vessels in operation or on order worldwide has reached 410, according to estimates by Gena Solutions Oy, a Finland-based company that analyses low-carbon technologies and projects. The figure includes new builds and retrofitted ones.
"By 2030, we project that there could be more than 600 to 650 methanol-fuelled vessels based on the current trend," Vitalii Protasov, chief executive and co-founder of Gena Solutions Oy, tells EEI. Maersk alone has deployed nine dual-fuel methanol vessels, including seven delivered in 2024. Another 50-60 are expected to enter service between 2026 and 2030, according to the company’s annual report for 2024.
It's not just container ships. Methanol adoption is spreading across the entire maritime sector, from ocean-going chemical tankers to super yachts, according to Gregory Dolan, chief executive of the Methanol Institute, a global trade association. Last May, the world's first methanol powered tugboat, the Methatug, was unveiled at the Port of Antwerp- Bruges in Belgium.
Inland vessels are making similar moves. Stolt Ijssel, a chemical tanker, has become the first inland vessel in Europe to be certified to run on methanol. However, compared to ocean-going vessels, inland ships have the additional option of switching to batteries because of their shorter ranges, Petroni notes.
Chicken-and-egg dilemma
A key driver for methanol's rising popularity are the tightening policies. The International Maritime Organization (IMO), a United Nations agency that regulates maritime transport, has pledged to cut the industry's CO2 emissions by "at least 40%" by 2030 and make "at least 5%" of its total fuel and energy consumption "zero or net-zero" by the same year.
In the EU, any large ships above 5,000 gross tonnage must slash the greenhouse gas intensity of their fuels if they call at the bloc's ports — or face penalties, according to the FuelEU Maritime Regulation. They must also pay for their CO2 emissions partly or fully under the EU's emissions trading scheme.
As interest grows, the supply of renewable methanol has emerged as a challenge. At present, virtually all of the methanol produced globally is derived from fossil fuels, while only around 0.2% is considered renewable.
They are two types of renewable methanol. One is bio-methanol, which is made from sustainable biomass, such as agricultural waste. The other is e-methanol, which is produced by combining renewably sourced CO2 with hydrogen that has been separated from water using electrolysis powered by renewable energy.
In Protasov's view, the problem isn't that there won't be enough supply in the future. Rather, it is hard to move planned projects into construction and operation.
According to his company's assessment, there are more than 200 renewable methanol projects in the global pipeline, whose combined capacity is expected to exceed 34 million tons a year. "That's a lot more than the needs of shipping companies," Protasov says. He predicts the annual demand of renewable methanol by the maritime industry to range from four to eight million tons by 2030.
However, the lion's share won't be built unless they ink long-term offtake contracts with shipping companies in advance so as to reach final investment decisions. Only about 3% of the current pipeline has secured such agreements, according to Protasov. This is "a major issue" for the industry, he notes.
The cost challenge
Cost is viewed as another obstacle. Renewable methanol, especially e-methanol, is currently much more expensive than conventional marine fuels.
According to Maritime Strategies International, the average cost for e-methanol in 2024 was $2,348 per ton of low sulphur fuel oil equivalent, nearly four times the price of low sulphur fuel oil.
Mariam Tzannatos, a decarbonisation analyst at the London-based consultancy, tells EEI: "Pricing is currently a significant barrier to the widespread adoption of renewable methanol in the shipping industry."
But changes are looming. Tzannatos expects regulatory frameworks and the development of the global hydrogen market to bring down the price gap. Plus, penalties will increase for those companies that fail to meet the emissions-reduction targets, and the development for relevant infrastructure will scale up. Both are due to improve renewable methanol's costcompetitiveness, she notes.
From 2040, renewable methanol may even become cheaper than conventional marine fuels, particularly on routes heavily impacted by EU regulations, according to analysis by Tzannatos and her colleagues.
Some industry insiders are even more positive about the fuel's future. One of them is Frank Obrist, founder of the German-Austrian Obrist Group, which has invented a technology to capture CO2 directly from air.
Obrist argues that the key to slashing costs lie in harnessing solar energy, which is "almost free". Using his company’s technology plus renewable hydrogen produced with solar power could yield renewable methanol that is cheaper than fossil fuels and can achieve negative emissions in its lifecycle, he tells EEI.
His group projects the production cost of the renewable methanol produced in this way to be $0.43 per liter, less than half of the cost of fuel oil in the US at the end of last year.
China leads the show
As in other clean energy sectors, China is the global leader in making renewable methanol. But compared to the solar and battery sectors, where it has virtually achieved a monopoly, China's advantage in the budding industry is smaller. It accounts for 52% of the current project pipeline in terms of capacity, followed by Europe and North America, Protasov says.
But 87% of all projects that are under construction right now are based in China, he notes. "This means that most of the new supply in the next two to three years will come from China to the global market." His company projects China to be the world's largest exporter of renewable methanol from 2026.
Over the past two years, European shipping companies have closed a few landmark deals with Chinese renewable energy providers. Maersk has signed long-term contracts to source renewable methanol from Xinjiang-based windturbine maker Goldwind and Shaanxibased solar giant LONGi. German carrier Hapag-Lloyd has also reached an agreement with Goldwind.
But there is little comparison between the EU's ties with China on methanol and the bloc's previous dependence on Russia for fossil fuels, according to Protasov
As most vessels can run on two types of fuels, they will always have the option to switch to the other if the supply of methanol becomes problematic, Protasov says. He adds that unlike gas from Russia, the EU doesn't rely on physical pipelines to receive renewable methanol only from China. "It could be delivered from North America, which will likely also be a big supplier to the European Union."
The best option, however, would be for European shipping companies to invest in green technologies, such as direct air capture and the production of renewable methanol, themselves, as Obrist puts it. "At the moment, far too little is being done in this direction," he says.
EU's reliance on China
But apart from the manufacturing of renewable methanol, the building of vessels is critical for the EU's shipping transition, and that's where "China will play a much bigger role", says Petroni of Climate Analytics.
China is the world's largest shipbuilding country followed by South Korea and Japan. Last year, Chinese shipyards bagged a whopping 70% of the global shipbuilding orders when calculated in compensated gross tonnage, crushing their competitors, according to a report by Clarksons Research, which provides data and intelligence about shipping and trade.
The report attributes China's dominance to its flexibility in shedding or increasing shipbuilding capacity according to needs, continuous industrial expansion and competitive prices. It notes that 76% of the orders currently held by Chinese shipyards are from overseas shipowners.
European ship owners place about 85% of their orders with Chinese and South Korean shipyards, and the trend is unlikely to change since Europe lost its shipbuilding competitiveness to Asia decades ago, Petroni says.
"In this regard, Europe is and will be heavily reliant on China for its shipping transition," he says