LR: Lack of E-Fuel Supply is Delaying Adoption of Methanol Engines

Lloyd's Register (LR) has updated its 2023 study on clean-fuel engine retrofits to account for changes in the green energy market. The low availability of e-fuels will delay the expected timeline for methanol-fueled engine adoption, according to LR, and more vessels will have to retrofit later if the fleet is to meet IMO emissions goals.

"A key assumption of the [previous] modeling was that all vessels built beyond 2027-2030 would be capable of using zero- and near-zero emissions fuels. Without further effective drivers to take up these fuels or visibility on alternative fuel availability, that date could be pushed back – meaning that more vessels need to be retrofitted in a shorter timeframe, exacerbating strains on retrofitting capacity," the class society said in an update.

So far, only Europe has enacted regulations that could motivate shipowners to make the costly switch to zero-emissions fuels, and carbon-tax discussions at IMO are still ongoing (with changing U.S. government views on climate change a wild card). Until IMO's deliberations are completed, shipowners will have difficulty picking the right investments to meet future targets. For now, owners are favoring conventional bunker-fueled propulsion or dual-fuel LNG engines, and orders for green fuel-capable vessels have taken a back seat, LR reported.

"Over 2024, increasing numbers of shipowners turned to LNG to reduce exposure to carbon pricing. More than 305 LNG-fueled ships were ordered, far outpacing growth in the methanol- and ammonia-fueled fleet. This included major shipowners, such as Maersk, that had previously touted progressive decarbonization plans based around methanol fuel," LR noted.

Methanol conversions are just getting started but are expected to pick up over the next four years, primarily in the container segment. Methanol accounts for most of the planned conversions through 2029, but the numbers are small, in the single digits per year.

If the IMO adopts a regulatory structure to drive the uptake of zero-carbon fuels, as is expected, shipyard capacity for future alternative fuel retrofits might not be enough to meet the demand. LR has identified 16 yards that have the experience to carry out the work, and MAN has highlighted an additional 11. Taken altogether, these yards could handle about 465 conversions per year, less than the 1,000 per year that LR expects at the peak of demand.

"In 2025, there will be many more conversions based on existing orders, offering vital experience for the fledgling market. Whether the growth in order numbers themselves will accelerate will depend largely on the signals that both alternative fuel producers and shipowners receive from regulators," LR concluded.