2023 Was Year Of Methanol For Shipping But That Likely Won’t Last

Copenhagen, Denmark September 15, 2023: Laura Mærsk, the world's first methanol enabled container ... [+] vessel moored in Copenhagen harbour. As we’ve seen in this series on electrifying everything everywhere all at once , shipping fuel demand will decrease substantially. Bulk shipping is 40% fossil fuels and 15% raw iron ore, and both those segments will drop, while battery electric will take over inland waters and much short sea shipping.

But burnable fuels will still be required. Most recently, we looked at green ammonia as an alternative, finding that in the likely best case scenario it was almost four times as expensive per unit of energy as the ten year average of around $500 per ton for bunker fuel globally per Ship & Bunker , much less convenient to bunker as it must be chilled to 33° Celsius and of course it’s so toxic that ship and port worker fatalities would be inevitable.

Enter methanol. It’s wood alcohol and close to 200 million tons of the liquid are manufactured globally as an industrial feedstock for plastics, plywood, synthetic fabrics, fibers, pharmaceuticals agrichemicals. Note what isn’t on that list, fuels. Like hydrogen and ammonia, it just isn’t used much for that purpose today.

Yet shipping giant A.P. Moller Maersk started a trend in mid 2021 by ordering dual fuel methanol diesel engine ships. The past year saw dozens more orders from shipping giants Evergreen, Wallenius Wilhelmsen, Ocean Network Express and COSCO Shipping. Is that a good idea with current methanol? No. It’s made from natural gas, coal and other fossil gases today with an average of about four tons of greenhouse gases per ton of methanol .

Manufacturing it is a global warming problem to the tune of 500 to 700 million tons of greenhouse gases per year, one to two percent of total global emissions. And as a shipping fuel, it only has 45% as much energy per ton, so it’s actual greenhouse gas emissions are three times worse well to wake than marine diesel.

Finally, current methanol averages 1.6 times as expensive for the same energy as the ten year average for bunker fuel. That said, unlike ammonia and hydrogen, methanol is a convenient liquid at human compatible temperatures. While you wouldn’t want to drink the stuff or splash it on your skin, it’s much less dangerous than ammonia.

And as an alcohol, it burns cleanly with few particulates and no sulphur emissions. The global methanol industry has had a strategy of pushing it as a shipping fuel for at least a decade, with early methanol ship trials including the 2015 launch of a converted Stena Line ferry. If they succeed, global demand for their product will not go up just a bit, but multiply and at a much higher price point per ton.

That’s led them to making all sorts of claims that don’t stand up to scrutiny , including that their current product is better for the climate than diesel, that it’s the same cost today as diesel and that green methanol would be the same price as current methanol. Can we make methanol with a fraction of the greenhouse gas emissions? Of course.

There are two greener pathways to methanol, synthesizing it from green hydrogen and carbon dioxide and using biological sources of methane, the key ingredient in natural gas, instead of fossil gases. Both have significant challenges. Let’s start with synthesizing methanol, one of the great hopes of the hydrogen f0r energy crowd.

The International Energy Agency just published a big report that included it, The Role of E fuels in Decarbonising Transport , and it’s worth parsing the claims, as while they are becoming more realistic and hence a cautionary tale, they are still very optimistic. The process is familiar. First water has to be electrolyzed with a lot of electricity and expensive equipment to make hydrogen.

Then excess water has to be removed from the hydrogen and it has to be compressed. The combination requires 50 to 55 MWh of electricity for a ton of hydrogen. At Quebec’s ultra low, 24/7/365, low carbon electricity rates of US$49 per MWh, something I assessed for manufacturing green fertilizer in that province, that’s $2,700 just for the electricity.

As the IEA report notes, the electrolyzer including balance of plant for the hydrogen side is $1,700 to $2,000 per kW of capacity, and the workups use the more flexible and costly PEM electrolyzers. Interestingly, this balance of plant is well above earlier projections I’d been making of balance of plant being roughly equal in cost to the expensive electrolyzers, but in fact its about four times as much for alkaline and two and a half times as much for PEM electrolysis.

The remainder of components in an electrolysis facility are commoditized industrial components that aren’t going to get cheaper. This makes it clear that as electrolyzers decline in cost, capital costs will not diminish nearly as much as many predict. Assuming 75% to 88% cheaper electrolyzers — deeply unlikely cost reductions — capital costs would still be around $1,300 per kW for the facility.

A plant capable of producing 200 tons or so a day of hydrogen would have an electrolyzer capacity of about 350 MW (with an actual electricity draw 50 to 100 MW higher than that), so would cost about $700 million. Electrolyzers, the most expensive component among the 28 or so, only last about a decade.

At ten years, new electrolyzers need to be purchased and installed. Even assuming capital costs decline for electrolyzers for the replacements, amortizing the plant over 25 years adds $600 to the cost of a ton of hydrogen. That results in a best case cost of hydrogen manufacturing of $3,300 per ton.

And that’s in a scaled, integrated facility where the hydrogen is used on site, the electricity is about as cheap as it can be and it’s available 24/7/365. The lower the utilization, the higher the cost. The higher the cost of electricity, the higher the cost. Hydrogen can be green, but it won’t be cheap.

Methanol is made up of a carbon atom, an oxygen atom and four hydrogen atoms. The hydrogen atoms are much lighter, so you need about 0.125 tons of hydrogen for a ton of methanol. The problem is that the process produces methanol and water, so some of the hydrogen that goes into it ends up in the water.

Those 200 tons of hydrogen would turn into roughly 1,070 tons of methanol in the best possible case. Just the hydrogen component of a ton of methanol would cost about $610. The IEA report cherry picks an absolute best case scenario for methanol manufacturing with a Midwest USA located hybrid wind and solar farm with an attached methanol synthesizing facility with no grid connections.

It picks a capacity factor for the wind of 44%, which is very good for onshore wind as the US average among recently built wind farms is 39%. They add battery storage to firm the electricity sufficiently to use the expensive equipment enough of the time. They find that with this custom built facility, the total cost of electricity would be in the range of $30 per MWh, an amount well below the cheapest electricity in North America, Quebec’s with its fully amortized dams and transmission.

Even at that price, hydrogen would be about $420 of the cost of a ton of methanol. Then there’s the carbon and the oxygen. They come from carbon dioxide, the problematic greenhouse gas. It provides 87.5% of the mass of the methanol, but some of the oxygen in carbon dioxide ends up as water. Every ton of methanol needs about 1.5 tons of the gas, in a close to 100% efficient process.

And carbon dioxide isn’t free. The IEA report makes that clear, saying that the best possible case with the purest carbon dioxide stream would cost $30 per ton, but that actual costs would be $80 or even hundreds of dollars per ton for direct air capture. The report makes it clear that there just isn’t that much $30 carbon dioxide capture that’s possible and it certainly isn’t in a patch of the Midwest with an untapped premium wind resource, a lot of flat land for solar, great water for the electrolysis and space for the industrial chemical processing facility.

In 2019 I assessed direct air capture firm Carbon Engineering’s claims for synthetic fuels , including methanol. I gave them every benefit of the doubt, picking their absolute lowest projected cost per ton of captured gas, $112 per ton. Purchased fossil CO2 pumped up from underground typically costs $100 per ton when trucked in.

Piped CO2 has to be chilled and compressed into liquid form at significant expense as well. A reasonable cost of $100 per ton of CO2 puts it as $150 of the cost case for a ton of methanol. So far we’re up to $760 per ton of methanol in likely the best possible real world case just for the hydrogen and carbon dioxide.

Direct air capture would increase that by hundreds of dollars per ton. And we haven’t even started making methanol. That requires combining the hydrogen and carbon dioxide into a synthetic gas, running it through a reactor at temperatures up to 300° Celsius and a hundred atmospheres of pressure. Even at that heat and pressure, it’s the cheap part of the process, requiring about 1.5 MWh per ton, another $73 at Quebec’s best possible rates, as well as the amortization of the equipment.

A very optimistic cost case for synthesized methanol is $900 per ton at the factory, without distribution, bunkering or profits. Remember, it only has 45% of the energy of diesel, so that’s already four times the ten year average cost of VLSFO for the same distance traveled. Vitalii Protasov of green analytics firm GENA Solutions Oy, estimates the cost of methanol projects professionally.

For 60 projects around the world for methanol delivered to Rotterdam, fully burdened with capital expenditures the cost per ton was $900 to $1,500, prior to profits or bunkering costs. Those rates include all of the costs I’ve worked out above, but also transportation to where methanol would be put into ship’s tanks.

The average of that is $1,225 per ton. Add 15% for bunkering and profits and it’s $1,400 per ton in a ship’s tanks. That’s six times the ten year average cost for the same energy of very low sulfur fuel oil (VLSFO). To be clear, VLSFO has varied widely in price over the past years from as low as $351 to as high as $1,100 per ton, tightly correlated to the price of Brent Crude.

At four to six times the cost for useful energy of current bunker fuel, synthetic methanol is clearly a very expensive option. It’s much easier and safer to handle than ammonia, which makes up for the slight price advantage ammonia has. The USA’s $3 per kilogram subsidy for green hydrogen would make this a lot more affordable, but only the USA is putting that kind of money into the substance, it’s not guaranteed to persist and ships fuel up everywhere, not just in US ports.

Bunkering arbitrage, where ships fuel only at the cheapest bunkering ports for multiple legs of their journey, is much harder with only 45% of the energy in the fuel. Worse, methanol takes up about 6% more volume for the same mass. But I said that there was a second pathway to methanol. That involves biologically sourced methane.

There’s a bit of craze right now for anaerobic digesters that turn waste biomass into methane, a potent greenhouse gas, which I think is quite problematic. At present, our economy produces a lot of excess biomethane that we don’t capture, and intentionally producing more strikes me as intentionally adding risk.

Maersk’s initial green methanol was actually green, made from methane coming out of a landfill in the USA. Unfortunately, the ship was sailing from South Korea to northern Europe, so it wasn’t that green in the end. It appears most of their methanol purchase agreements are for biological pathway methanol, which is a clear indicator that it’s economically less problematic.

A large integrated biomethane and methanol facility would mitigate the risks of methane leakage. However, it’s still not cheap. While during the European energy crisis biomethane was cheaper than natural gas, hence a big part of the craze, in normal times it’s three times more expensive. And that’s in Europe, where natural gas is much more expensive than in North America.

Historically, they’ve averaged twice the cost and since the crisis they’ve averaged five times the cost in Europe. In geographies with lots of natural gas, biomethane costs are six to ten times more than fossil gas costs. The methanol process from natural gas or biomethane is the same, which is an advantage, but it involves burning the gas to boil water to make steam to turn more of the gas into the synthetic gas which goes into the pressure reactor.

When the primary feedstock is three to ten times the cost of usual feedstock, the end result is not going to be cheap. Assuming double the cost per ton of methanol as the bottom end, all else being equal, leads to fuel that’s over four times the cost of the ten year VLSFO average. That’s not better than synthetic ammonia or methanol.

There’s another pathway to methanol via gasification of waste biomass, but it’s much less scaled than the problematic anaerobic digestion pathway for now. Perhaps it will be cheaper. Perhaps not. The shipping industry is starting to wake up to this, but are still using very low fuel costs. Jeremy Nixon, the CEO of Japanese liner Ocean Network Express (ONE), told the audience at a major shipping event at the beginning of 2023 that fuel costs would be double or triple.

That firm is buying methanol dual fuel ships, so clearly the actual fuel costs for methanol haven’t percolated up to him. Boston Consulting Group recently released a white paper which they claimed indicated that the power to x sector, which is where synthetic ammonia and methanol lie, was experiencing strong momentum.

But the data in the paper showed that of the almost 1,400 proposed projects in their data, only 0.2% by tonnage had reached operation, with the vast majority stalled prior to final investment decision. The high costs for synthetic ammonia and methanol as fuels should be an indicator why announced hydrogen and power to x projects aren’t getting approved and built.

It’s just an expensive way to do things and we have alternatives. For shipping, I think it means that those dual fuel ships won’t be burning a lot of methanol. But if not methanol, what?.