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Andre Mikhail:

Hello, and welcome to the Platts Commodities Focus podcast by S&P Global Commodity Insights, where today we'll be talking about methanol and its potential as a marine fuel in the transportation sector.

My name is Andre Mikhail. I'm a market reporter on the Americas Chemicals Team covering methanol, and we are joined by Olivier Maronnaud. He is our global lead for methanol research analytics and for plastic circularity. Olivier, thank you for joining.

We are coming up on a April 7th to 11th meeting of the International Maritime Organization, that is the UN body regulating use of marine energy. And there's a lot of buzz going around about alternative marine fuels, of which methanol is certainly one. So hoping to get your insight on the outlook for methanol as a marine fuel and how that might impact supply-demand balances in the Atlantic Basin and globally. So I figured we might start with its current use and how the outlook has changed this year from last.

Olivier Maronnaud:

All right, that's a lot of question that you ask, Andre. And-

Andre Mikhail:

It is.

Olivier Maronnaud:

... maybe if I start probably just to give you a bit of an overview of who we are and what we do. So as I said, we're a global team and we look at the methanol markets in its own right, but we look also at the demands and the drivers that we see around the different applications for methanol, whether it is chemical applications or whether it is fuel applications.

Methanol, about 1/3, frankly more than 1/3 of global methanol consumption currently is already as a fuel and therefore either directly or indirectly I would say. And so that's a key part of our analysis.

And we look at the current market, but we develop forecasts as well. So supply-demand and price forecasts over the short, medium, and long term, and so as you can imagine, kind of looking at the bunkering sector is in fact quite an important driver into how we believe the methanol market could evolve over time.

That's an area that we look into, probably not new in the methanol world. As I said, first of all, methanol is already used as a fuel, but methanol into bunkering is something that has started probably for the first time in Europe more than 10 years ago and has been developed since. So it's certainly a key topic, it's a fast-growing topic, but it's not necessarily a new topic as such in our world.

Andre Mikhail:

And what would you say has changed about that topic this year for last?

Olivier Maronnaud:

Couple of things have changed, I guess. I mean, as I said, methanol into bunkering is not new, we've seen the first development 10 years ago. We've seen since a number of players, primarily methanol players or shipping companies moving methanol around, kind of making developments around what we call dual-fuel engine vessel. So though that vessel that can kind of run on conventional bunkering fuel, the LSFO, or run on methanol.

And I think we've seen the situation obviously changing over the last few years, and maybe four, five years ago is when we've seen a significant change on the one hand because we started to see more and more of those chemical tankers with dual-fuel capabilities being commissioned. So those came already kind of 4, 5, 7, 6 years ago.

And then we've seen orders from not just those chemical tankers, but from all the shipping companies, and primarily container vessels, right? And then not just container vessel, but then we started to see car kind of vessels and also kind of cruise vessel as well.

So the shift around the type of vessels that I've been looking at, dual-fuel capabilities, potentially methanol, and obviously at the end of the day trying to decarbonize has certainly grown over time. You mentioned this upcoming meeting at the IMO next week, and obviously legislation is a key driver behind it.

Andre Mikhail:

It certainly is. My understanding about the regulation in the EU is that FuelEU Maritime policy went into effect in January, and since then we've seen nearly double the cost for intra-EU bunkering, as to be expected. So given how much of a guiding force regulation is in this conversation, I'm wondering if you think the existing carbon penalties are going to be incentive enough to drive some of these low-carbon fuels?

Olivier Maronnaud:

So if we start from the beginning, so definitely Europe is the place where we've seen the regulation being the most proactive in shipping and in decarbonization, probably not just around that sector, Europe is often the driving force around these themes.

And we've seen two key pieces of legislation in Europe. We've seen, as you said, this FuelEU Maritime that kicked off in January 2025. And then we've also seen maritime sector being included into the ETS, this EU carbon trading scheme in 2024.

So we've seen those two developments happening in Europe with obviously as often the case starting from a relatively low kind of constraint level I would call it. And then as we approach some of the key deadlines, 2030 and 2040 and 2050, to net-zero, then obviously those targets become more and more stringent.

At the moment, we don't see the regulation being kind of strong enough in Europe to really incentivize the need for the ship owners to move into low-carbon fuel as such. We see obviously more regulation coming in, more stringent, as I said, targets both in terms of FuelEU Maritime and the ETS, both in terms of carbon accounting and eventually the carbon price, but we don't really see kind of the incentives to be strong enough.

When we run our analysis and when we look at the different targets and the differential between the bunkering fuel price from a conventional bunker fuel and a low-carbon alternative, then we would expect really the legislation to become really kind of stringent enough by the mid 2030s.

So we're still a relatively long way away before we see that incentive, that impetus, but it doesn't mean that now that we've got a target, at least the ship owners understand what is the direction and by what time they need to be ready. And I think that's a lot of the drivers behind some of the announcement that we hear from the ship owners.

Andre Mikhail:

I would agree. That was also a remarkable job of summarizing about 10 years of policy in two minutes, so should consider being a reporter.

I was going to ask, for the IMO meeting, there are numbers flying around for proposed carbon levies on marine energy use. Those range from $18 per metric ton of CO2 equivalent to up to 600 per metric ton proposed by Maersk.

So I've heard from multiple market participants that there's a lot of doubt as to whether a carbon levy will be agreed on at all. There are meaningful countries such as China and Brazil who are very active in global shipping who are still opposed to a levy. So, again, briefly, but as best you can, how would such a levy impact the adoption of low-carbon fuels, and what would that mean for supply-demand balances, let's say just for methanol?

Olivier Maronnaud:

I can easily say without taking too much risk that a low-carbon fuel by nature is more expensive than a conventional bunker fuel. And the fuel in itself, the way of producing the fuel and having it available is more expensive than conventional bunker fuel. And then not just the fuel itself, but the whole kind of supply chain required to get that fuel ready and available, and available where the vessels need it, is going to be more costly than conventional bunker fuel.

It will certainly become more costly if we move into a kind of a multi-fuel landscape, because that means having more complexity into the bunker fuel system, and therefore more complexity means higher cost by nature.

And so this higher cost of low-carbon fuel, both the fuel itself, as I said, and the supply chain associated, versus a conventional fuel mean that you need a carbon levy in order to at some point have those two alternative kind of at least being at par.

And so that's why the industry really is, I wouldn't say they request for carbon levy as such, but at least they want clarity behind the carbon levy in order to be able to then make the math on their side and say, "Okay, that's what we will have to pay should we see a carbon tax, and so what do we need to do in order to address that and to move to a low-carbon future and reduce our carbon emission?"

That's exactly what Europe kind of has done by putting, as I said, kind of a carbon levy with the ETS and then having kind of carbon emission targets as well through the FuelEU Maritime. And that's what ultimately is going to be needed at the IMO level to, one, give, again, direction to the ship owners, and also because shipping by nature is a global industry, and so having regulation in Europe is one thing, but it's not going to be enough to make the industry move.

And so this carbon levy, you mentioned $80 I believe, which is probably not far from where the current carbon price is in Europe. And then you mentioned up to $600 that has been floated by some of the vessel owners. I don't know what would be the real number, it depends also how you account for your carbon emission, but certainly a carbon levy that is north of a couple of $100 is going to be needed in order to make the low-carbon fuel alternative kind of interesting from a cost point of view, or at least add power from the cost point of view with conventional bunker fuel.

Andre Mikhail:

Of course. And until some of these alternative fuels become more compelling from a cost perspective, we're going to continue to be in a situation where there are a lot of projects that have been announced, but no actual capacity per se.

I know we have Kasso in Denmark having started up recently with 40,000 metric tons per year of e-methanol capacity, but at the moment, e-methanol premiums are still somewhere between 3 and 5x of conventional bunkering fuels. So that leaves us in this ambiguous space where we're looking at a multi-fuel future, but it's more an expression of the fact that the market has yet to decide on a single fuel rather than advocating for the efficiency of multiple fuels.

So right now, the other ones in contention, to my understanding, are LNG and are ammonia. They have different drawbacks and different advantages depending on who you speak to, but what would you say makes methanol compelling as an alternative fuel and how would we advocate for its ease of adoption in the shipping space?

Olivier Maronnaud:

So I think you're right. So the situation that you've just described is exactly the kind of limbo in which the methanol industry is. And you mentioned all the competing or the alternative fuels that could be either LNG, ammonia. Obviously biofuel is another one that could be kind of blended into the conventional VLSFO.

And what we have on, I mean, if I look at methanol at least, but what we have on the one hand is a number of ship owners that for the last, as I said, six, seven years already have been putting commitment in commissioning new dual-fuel engine vessel, but also in some cases retrofitting existing fleet from VLSFO to dual-fuel engine. And this retrofitting is actually quite an interesting development in itself.

But those vessels have the capability of running on VLSFO or methanol. And we've been discussing methanol as a broad term, but it could be conventional methanol, in which case your carbon emission does not really reduce, or it could be low-carbon methanol, whether you call it blue methanol or whether you call it green or bio or e-methanol, and all of those would have slightly different kind of related carbon intensity.

And what we have, so from a ship owner point of view, having those dual-fuel engines is relatively limited in terms of cost. So I think we estimate about 10% of a new build is added to have this kind of dual-fuel capability. So the additional cost is fairly marginal I'll call it. But then it gives the ship owner the ability to run not only on conventional fuel or conventional fuel and biofuel, but ultimately to run on methanol, because the purpose is to reduce carbon emission on low-carbon methanol.

And that creates that kind of potential demand for the methanol industry, right? At the moment, you have about 50 vessel, mainly chemical tankers as I mentioned, but for the last two years, late 2023, 2024, and beginning of this year, for the last two years we've seen the first few container vessel with dual-fuel capabilities being commissioned.

Those are the likes from Maersk. And just over the last two months, late February and early March, Maersk kind of commissioned two new container vessel. That's two out of the 14 that they, or 18 I should say, that they planned.

And CMA CGM, another one, just released early March their very first kind of dual-fuel engine container vessel as well. And that's one out of an announcement of 12 vessels that are expected to come on stream 2025 and into next year as well.

So we see those developments, as I said, about 50 vessel, 45, 50 vessel that are able to run on methanol currently. And that's already a lot of methanol consumption that could go into that sector should those vessels run on methanol. But the reality is the regulation, as we said, is not kind of stringent enough in Europe. And it's only in Europe, so in the rest of the world there's no legislation that would really incentivize the ship owners to run on methanol.

And if you run on methanol, the reality is you're going to pay more and you're not going to really reduce your carbon emission. So very unlikely for you to run on methanol, although you could. And then ultimately, run on low-carbon methanol.

But the big issue on running on low-carbon methanol is kind of the chicken and egg situation where it's higher cost. And in order for companies to invest into new low-carbon methanol facilities and production units, you need to have the incentive from the ship owners to at least have the willingness to pay and to commit over the long term as well.

And those are the two big issues, because again, the incentive to pay is not quite yet there and legislation is yet to be fully framed. And then the ship owners, although they commit on the long term for a new vessel, when it comes to their bunkering activity, those are very kind of short-term driven.

And so very difficult for a ship owner to say, "I'm committing with an offtake agreement for the next 15 or 20 years on low-carbon methanol," without having that incentive on the legislation side. So that's where the chicken and egg situation that you see, and that has been the case for a number of years, and for the moment hasn't come to a solution, although you mentioned this new Danish facility that produced e-methanol for the first time just last month in March.

Andre Mikhail:

True. And I should amend my earlier statement, there's short production in the Atlantic Basin, but I've heard there's real production potential in China where there's a lot of renewable energy feedstock, and there have been at least one offtake agreement signed between a Chinese company, Goldwind, and a container line. So how do you see the development of that market in China in terms of maybe resolving that chicken and the egg situation?

Olivier Maronnaud:

So yeah, you're right. So again, when we talk methanol, there's conventional methanol and low-carbon methanol, and you have different ways of producing low-carbon methanol. And you see a very different dynamic here, depending on the players and the region.

If I start with the players, and then I'll come to your question on China, if I start with the players, I think the view from a lot of the actual methanol producers that you see in the industry is to try and decarbonize their existing production.

And so the question is how do I make my existing production primarily derived from natural gas with a lower carbon intensity and that's primarily blue methanol? And therefore how do I do that? And so how do I then make sure that from the regulatory standpoint, that is truly considered as a low-carbon methanol? So that's on the one hand.

And then the alternative is the so-called green or e-methanol or biomethanol, which is either derived from biomass gasification, and we've seen a couple of projects progressing in that sense, or mainly e-methanol, which is obviously derived from green hydrogen, which as you said, is related to green power and renewable power.

And so that solution, which is probably where we see most of the project, we track about 250 project globally of low-carbon methanol, about 60% of them in numbers. And it's quite the same, probably even more in volume terms, e-methanol derived from green hydrogen.

And in this case you need the green hydrogen on the one hand, so you need renewable electricity at a competitive price, and you need the biogenic carbon in order to really be considered as a low-carbon methanol.

And in that case, when you look at e-methanol, then the main cost component is, as we said, renewable power, and ultimately the cost of building your facility, so your construction cost, because the hydrogen piece is extremely expensive.

And I think that's where China has been kind of relatively ahead of the game because on the one hand, as you said, they're actually quite an advanced player when it comes to renewable power, but they're also quite a cheap place when it comes to building costs.

And so that's the reason why China has been making quite a lot of progress, probably ahead of Europe and certainly ahead of the US where the IRA and the trouble that we've seen over the last few months have delayed quite significantly many of the projects.

And so we have few projects that are being built in China at the moment. Goldwind is one of them with I think a capacity of 200 kt, if I'm correct, and as you said, an offtake agreement with one of those shipping companies that we've mentioned earlier.

Let's see how things develop. Goldwind is not the only one. They expect it to get commissioned by the end of this year, but probably more realistically sometimes in 2026. And as I said, there are a couple of other project that would make China probably the first large-scale, but it's all relative, but large-scale, low-carbon methanol producer worldwide.

Andre Mikhail:

Very much agreed. So last thing here, Olivier, as we approach the IMO meeting, what are some things as a methanol analyst that you're going to be keeping an eye out for for the medium and long term as to the development of the market?

Olivier Maronnaud:

That's a very good question because as we said, kind of the legislation in Europe has been discussed for a number of years and have been implemented in the last kind of a bit more than 12 months for the ETS and just recently for the FuelEU Maritime. And obviously as we said, shipping is a global industry, and so this European legislation is not going to be enough, it needs to be a global approach to it.

So I think what we're really going to watch is what's going to happen at the IMO, what would be the outcome, the carbon levy being kind of one of the key items that would be discussed and the penalty associated to it.

Obviously, I mean, we live in a world at the moment where multilateral agreements are not really in favor. So it seems everyone comes into that meeting with a lot of positive kind of views, and this is great, but I think what we've seen developing in the last few months is actually something a bit different with more kind of bilateral agreements or even just a kind of a very country-specific view.

So let's see how things develop as well at the IMO level. And as I said, let's see what's going to happen both in terms of targets, in terms of carbon price and penalties that could be applied. And that would really kind of give us more direction around the actual potential for the shipping industry to decarbonize, because at the moment it's been targets without the penalty associated to it. And then we'll see whether within that new kind of potential framework that would come out of that meeting, the different fuels, so LNG, ammonia, methanol and others, how those would benefit or at least have a bit more clarity on their future.

Everyone is looking at it. We see a lot of development not just at the shipping vessel level, but we've seen developments from the methanol industry itself. We've seen development from the engine manufacturers, we see development from the ports. And just two weeks ago we had a World Petrochemical Conference with the Port of Houston and giving a bit of an update of what does it take for a port authority to try and promote and develop low-carbon fuel from a real kind of practical point of view, availability, kind of storage, and then all the requirement in order to make that bunkering fuel kind of happening in terms of guidelines and rules and so on?

So it needs a lot, and I think we will be watching the space with a lot of interest and see what would be the consequence for a lot of those 250 projects that I just mentioned that have been announced and require and need that kind of impetus and offtake and financing in order to go ahead. There is a lot happening, a lot that is still needed, and the next few months will give us more clarity I'm sure.

Andre Mikhail:

Yes, we will certainly be keeping an eye out for developments at the IMO next week, and I will look forward to discussing that next time, Olivier. So thank you so much for joining us in this conversation.

For participants in the methanol market, keep an eye out for the upcoming conference in Rotterdam at the International Methanol Producers and Consumers Association from June 12th to June 13th. The signup link will be in the bio.

Thank you to our listeners for tuning in to this Commodities Focus episode, which was produced by Jennifer Pedrick in Houston.