Private Banking

The shipping industry bets on green methanol

Along a narrow winding road on a windswept stretch of Iceland’s southern Reykjanes Peninsula, a collection of electrolyzers, compressors and pipes offer a turnkey solution to help decarbonize the shipping industry.

In 2006, the founders of Carbon Recycling International (CRI) saw an opportunity to use Iceland’s abundant geothermal power, fed by the underground rivers of magma that heat the Arctic nation’s groundwater, to create “electrified” methanol, a green alternative to fossil fuel. They located the George Olah Renewable Methanol plant—named for the late Nobel laureate—half a kilometer from the Svartsengi geothermal power station, whose warm runoff waters feed the famed Blue Lagoon tourist attraction. The facility, opened in 2012, was the first in the world to produce e-methanol; CRI used renewable geothermal power from Svartsengi to separate hydrogen from water and combined it with recycled carbon dioxide captured from the geothermal plant to make the fuel. By 2015, annual e-methanol production reached 4,000 metric tons. The operation helped prove the technology but not at a big enough scale to be profitable in what was still a nascent market. In 2019, CRI shuttered the plant to focus on pilot projects elsewhere.

Now the Icelandic company’s head start could be ready to pay off. The accelerating climate crisis and heightened concerns about energy security have created a surge in interest in green methanol, which is made by synthesizing green hydrogen — hydrogen created using renewable electricity — with renewable or recycled carbon dioxide. If the CO2 comes from biogenic sources, like agriculture or forestry waste, the resulting product is called biomethanol. If it is captured from other industrial processes or even directly from the air, e-methanol is produced. Both are considered green. CRI says it has 180 active inquiries from companies and governments interested in producing sustainable e-methanol and 130 investors including China’s Zhejiang Geely Holding Group (which began selling a methanol-battery hybrid car in China last year), Canada’s Methanex, Iceland’s Eyrir Invest and Helsinki-based Nordic Environment Finance.

Shipping giants AP Moller-Maersk and Cosco Shipping Holdings are banking on green methanol to fuel some of their fleets, making it a key part of the decarbonization of shipping. That’s spurring new supply from energy companies such as Orsted, which is building Europe’s largest e-methanol plant. By 2027, the production of e-methanol and biomethanol is poised to reach more than 8 million metric tons per year, according to the Methanol Institute trade group (see the chart). Cargo, container, and fishing fleets are powered largely by diesel-based bunker fuels. Planet-killing to produce and to burn and when spilled, diesel is the main reason shipping accounts for 3% of global greenhouse gas emissions. Methanol can lower that footprint by up to 95%, according to the Methanol Institute, if it’s green methanol that’s made using clean inputs. Today, methanol is typically made using fossil fuels—predominantly natural gas.

Container ship operators are under pressure from their retail customers to reduce emissions. Meanwhile, new emissions targets by the International Maritime Organization are nudging the sector forward, albeit slowly. Large ships are too heavy, and travel too far, to run on batteries, leaving three paths to reduce emissions: e-fuels, on-board carbon capture and improvements to energy efficiency. Only the first two offer the potential to be carbon neutral. While the C02 recycled to make e-methanol still ends up being released into the atmosphere when the e-fuel is burned, that could be fixed if carbon-capture technology becomes available on ships. That could create a fully circular process: Ships would fill up with e-methanol, collect the carbon emitted when it’s burned as they cross the ocean, and convert that carbon back into more e-methanol on the other side.

Green hydrogen offers potential to solve another big problem by lowering emissions from carbon-intensive industries like cement and steel. By capturing carbon from those sites and recycling it to make e-methanol — using renewable power and green hydrogen — the C02 serves two purposes before it ends up back in the atmosphere.

One hurdle for e-methanol is cost. Depending how it is produced, it can be three to four times more expensive than diesel-based marine fuels. The price range (FOB) Rotterdam for green methanol is estimated at a price level of about €550 per ton. But as green hydrogen production ramps up, the price should drop in coming years.

Green methanol has some physical advantages over other e-fuels that could be considered for shipping, including hydrogen and ammonia. Unlike hydrogen, it’s liquid at ambient temperatures and pressure, making it easier to ship and more efficient to store. While ammonia can also be made from green hydrogen — e-ammonia — it’s highly toxic and requires upgrades to store safely. In contrast, methanol is biodegradable and can be handled much like gasoline, requiring fewer retrofits or infrastructure changes, and making it much safer if it spills, according to the Methanol Institute. If the Exxon Valdez had been filled with methanol instead of oil, you could have gone back to that site two days later and not found a trace of methanol, versus polluting 1,400 miles of coastline!

Green methanol is a market which, one-and-a-half year ago, didn’t exist! No one would build, or even further develop, the green vessels because there were no fuels. No one would make the green fuels because there were no green vessels. Now some shipping giants wanted to try and break that chicken-and-egg situation. As part of Maersk’s commitment to net-zero emissions by 2040, it plans to introduce 19 container ships by 2025 capable of running on e-methanol as well as biodiesel (a supply hedge), altogether requiring 750,000 metric tons of e-methanol over that two-year period. By 2030, the company estimates it will need 5 million metric tons of green fuel a year, most of which will be e-methanol, and it’s signing agreements to secure supplies. Last October, Shanghai-based Cosco disclosed that it had ordered a dozen methanol-burning ships.

The developments are good news for CRI and its growing list of competitors, including Orsted and European Energy, both based in Denmark. As demand grows, CRI could decide to reopen its plant in Iceland, but for now it’s focused on projects with greater scale. The company licensed its technology and provided engineering, equipment, and services for the recent startup of the largest carbon-recycling methanol plant in the world in Henan province, owned by CRI shareholder Geely. The facility can produce 110,000 tons of low-carbon methanol a year. Another plant in Jiangsu province using CRI technology is scheduled to open this year.  

In a perfectly decarbonized world, there would be no C02 emissions from any industrial processes. But that’s hard to imagine, leaving a role for green methanol to repurpose that C02 for use in the shipping industry: it is the only option currently available if you want to step back from fossil fuels.