Why does Maersk’s decision to buy eight new ships matter? After all, the company owns around 700 already.

The reason is that the world’s largest shipping company is committing substantially more than a billion dollars to a set of new ships that may dramatically change the prospects for green methanol production around the world. It has ordered the vessels with engines that can either burn methanol or heavy fuel oil.

The economics editor of the Guardian described the Maersk decision as ‘a drop in the ocean’.[1] He was wrong: this is the clearest sign yet that a swing to decarbonised shipping can conceivably happen within twenty years. Methanol isn’t new as a fuel – and few doubt its feasibility for shipping – but low carbon manufacture of this simple chemical is not well-established. By providing an outlet for zero-carbon methanol production, Maersk will transform its production. And if the methanol doesn’t arrive on time, the company will be able to persist with using fuel oil in the engines.

A Maersk feeder container ship similar to the one ordered in February of this year with dual fuel (methanol/oil) capacity.

In March of this year a shipping magazine carried a quotation from a shipping analyst on why the major carriers were continuing to buy container ships powered by heavy fuel oil even though decarbonisation targets were inevitable.[2]‘There is no alternative’, he said. ‘Methanol ships are in development. There are trials with ammonia. There are studies of ships with hydrogen. None of these ships are orderable yet’.

Five months later, Maersk has shown that this conclusion was too pessimistic. It has chosen Hyundai in South Korea to build the dual fuel ships, probably powered by MAN engines. Delivery will start in 2024. This follows a commitment earlier in the month to source renewable methanol from a Danish supplier for the first - and much smaller - dual fuel vessel it ordered earlier this year.

Maersk’s principal gambles are as follows:

· About 20 dual methanol/oil ships are on the waters today. The earliest – a Stena Line ferry – entered service in 2015. But the existing vessels are far smaller than Maersk’s proposed new ships. The largest today are equivalent to a vessel carrying 2,000 standard containers. Maersk’s order is for ships able to transport 16,000 over long distances. The engine technology will need to be different. MAN says this is possible.

· Methanol is available as a bunker fuel at many of the world’s largest ports. But if Maersk is to only use green methanol it will have to ensure that this fuel is widely distributed around the world’s major termini.

· Will green methanol actually be available in sufficient quantities? About 200,000 tonnes a year are produced today, but very little would meet the company’s requirements for ‘zero-carbon’ synthetic fuels or for bio-methanol made from forest or field wastes.

· Green methanol is likely to be much more expensive than conventional bunker fuel, which is cheap partly because only ships can burn the least valuable output of oil refineries. Will customers pay the premium?

Dual fuel ships in the context of the Maersk portfolio

Maersk sails about 700 ships, mostly larger vessels that travel long distances. Its share of container shipping worldwide is about 17%. The new methanol-powered ships will carry a total of 128,000 containers or around 3% of Maersk’s carrying capacity. (The vessels on order are much larger than the typical ship operated by this shipping line). Very roughly, the dual fuel container ships will move around 0.5% of the world’s container freight.

Maersk’s ships use about 10 million tonnes of bunker fuel a year at the moment. That results in almost 30 million tonnes of CO2 emissions, about the same as Denmark, Maersk’s home country. Methanol carries far less energy per unit weight than oil but will probably be more efficient at generating motion in a ship’s engine. The company says it will need about 360,000 tonnes of low carbon methanol and this fuel will save about 1million tonnes of carbon emissions compared to using heavy fuel oil.

Methanol made from fossil fuels is not in short supply. The world makes about 80 million tonnes a year at present, mostly as a precursor to chemicals production. It is a simple alcohol, containing carbon, hydrogen and one atom of oxygen. (CH3OH). About 200,000 tonnes today is manufactured using captured carbon dioxide and hydrogen. This is often called ‘green’ methanol, although the CO2 has usually been derived from a source that uses fossil fuels, usual a flue gas from an industrial process. This is not really ‘green’; the carbon dioxide will eventually end up in the atmosphere when burnt in the ship’s engine.

Green methanol

Two types of methanol production may meet Maersk’s requirements for truly ‘green’ CH3OH. The first is when the CO2 is captured at a facility that is processing agricultural or biomass wastes. In this case, the gas has been extracted from the atmosphere by photosynthesis and so the methanol made using it will simply return the carbon dioxide to the air when burnt.

The second type of plant does not exist yet. It will capture CO2 directly from the atmosphere and chemically merge it with hydrogen from electrolysis using renewable electricity. This is technically feasible. The only question is cost. Maersk paid about $300 a tonne of fuel in the last financial quarter and this represented a little over 10% of its revenues. So the price of fuel matters, although not overwhelmingly so, particularly in times of astronomical freight rates, such as at present.

The plans for green methanol plants around the world show how much of a boost to the market Maersk might be giving. The first site where methanol was made without fossil fuels was probably at Carbon Recycling in Iceland. There, CO2 from a geothermal power plant that would otherwise be vented is used with hydrogen made from electrolysis. This technology has worked well for more than a decade. Carbon Recycling is now expanding internationally and is planning a 100,000 tonne factory in Norway and a 110,000 tonne equivalent in China. (Both are reliant on fossil fuel exhaust gases and so are not properly ‘green’).

Liquid Wind in Sweden is a start-up that wants to construct factories making 50,000 tonnes a year. Seven of these would be needed to cover the demand from Maersk alone. REintegrate, the Danish company making the green methanol for the smaller ship Maersk ordered in February, is offering just 10,000 tonnes a year.

The effects of Maersk’s decision

The biggest impact of the Maersk initiative will be to transform the prospects for genuinely green methanol. One beneficiary might be the HIF project in southern Chile which intends to make a petrol/gasoline substitute using a process which has methanol produced in an intermediate step. Its plans are not advanced but would be sufficient to roughly cover Maersk’s entire needs. I expect the project executives have already booked their tickets to visit Maersk’s HQ in Copenhagen.

What about the final gamble listed above? Will the cost be bearable? At the moment grey methanol trades for about $500 a tonne. And the energy value is little more than half that of fuel oil at $300 a tonne although combustion efficiency might be slightly better. This means that fuel costs would almost triple just by using fossil fuel derived methanol (and twice as much fuel will need to be carried for the same journey, reducing container capacity).

The average container cost about $3,000 to ship last quarter, according to Maersk’s quarterly report. Current fuel costs might have been around $400, which would rise to over $1,000 if grey methanol were used, adding about 20% to the overall shipping cost.

Green methanol is going to start by being more expensive, although possibly not significantly so. The two key costs are going to be the cost of hydrogen and captured CO2. CH3OH is 1/8 hydrogen by weight so a tonne of methanol requires 125 kg of green hydrogen. At the target price of $1.50 per kilogramme by 2025[3], the cost of H2 will be around $190. The capture of CO2 from air has a target price of around $100 per tonne and a tonne of methanol will need about 1.6 tonnes, implying a cost of at least $160. It might be less if the CO2 came from biological sources. Thus it is at least conceivable that green methanol might eventually cost no more than today’s fossil variety. But there is still a substantial price premium over the cheap heavy fuel oil used today.

What will be the effect of the world’s (eventual) carbon tax? Buying 360,000 tonnes of green methanol will save about 1 million tonnes of emissions. At a carbon tax of $100 a tonne, Maersk will therefore save $100 million, or about $280 a tonne of methanol. There’s still a big gap between the fuel cost of methanol and that of heavy fuel oil, even of the desulphurised variety.

Will Maersk’s clients pay the 20% increment that will be needed to cover the extra costs of green methanol when costs are reduced to today’s grey methanol prices? The company appears confident that it has obtained a sufficiently large base of customers prepared to pay the price. A long list of major global enterprises, ranging from H&M to Amazon and Novo Nordisk, seems to be committed to backing Maersk’s initiative.

This appears to me to be a sensible gamble from the world’s largest shipping company. And its commanding stature in its industry will encourage others to follow. In pushing for methanol, Maersk is indicating that it is not yet ready to take the bigger risks on low carbon ammonia as a fuel.

[1] https://www.theguardian.com/business/nils-pratley-on-finance/2021/aug/24/sunaks-stamp-duty-holiday-hard-to-square-with-levelling-up-rhetoric (Last part of the article).

[2] https://www.freightwaves.com/news/inside-container-shippings-sudden-newbuild-ordering-spree

[3] This is the figure target by electrolyser company Nel in 2025 in low cost electricity locations.