Green ammonia and methanol — derived from renewable hydrogen — are widely expected to be used in the future to reduce greenhouse gas emissions from the highly polluting shipping sector.

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But although methanol has had a headstart over ammonia in maritime over the past year, with major orders for dual-fuel engine vessels placed by Maersk, the International Energy Agency (IEA) warns in a recent report, entitled The Role of E-fuels in Decarbonising Transport, that this fuel could be 25-100% more expensive than ammonia (NH3).

This is largely because of the need to provide captured CO2 — from biogenic sources or direct air capture — to ensure that the green methanol (CH3OH) produced is carbon-neutral over its lifetime.

The IEA calculates that equivalently optimised plants, located on sites with high-quality renewable resources and low-cost biogenic CO2, would produce low-emission e-methanol today at a cost of $47/GJ, compared to e-ammonia at $40/GJ, with these costs respectively falling to $35/GJ and $30/GJ by 2030.

The carbon dioxide problem

When it comes to using fossil CO2, such as from industrial emissions, the agency cautions that this “can only reduce part of the system’s emissions, either from the plant where the CO2 is captured, or through displacing an emissions-intensive fuel”, adding that emissions associated with capture, transport and conversion of the gas must also be lower overall than what is emitted during production of the displaced fuel.

Methanol is more expensive to produce, but ammonia is more expensive to handle

The EU currently defines renewable and recycled-carbon fuels as resulting in a 70% reduction in CO2-equivalent emissions between the nearest comparable fuel, although it is agnostic to the source of carbon feedstock.

While the IEA did not list estimated costs for carbon from industrial sources, it noted that the lowest-cost biogenic CO2 streams would come from high-concentration sources such as fermentation (a key step in bioethanol production), where the gas is available “at a nearly 100% pure stream that only requires drying and compression before it can be utilised”.

However, while biomass-fired power plants could also provide a source of CO2, the concentration in flue gases is only 10-20% by volume.

As such, while capturing CO2 from fermentation costs around $20-30 per tonne, or adding 25% to cost of production per gigajoule compared to renewable ammonia, capturing the gas post-combustion pushes the cost up to $60-80 per tonne — making it 40% more costly than green NH3.

The specific source of CO2 could also limit the size of e-methanol plants, and therefore prevent economies of scale to reduce costs. While large corn ethanol production facilities generate around a million tonnes of by-product CO2 annually — sufficient for a gigawatt-scale e-fuels project — the IEA estimates that large-scale biomethane plants emit less than 5% of this CO2 a year, only enough feedstock for a 50MW project.

However, the agency notes that several biogenic sources could be linked via common pipeline infrastructure, allowing for much larger individual e-fuels facilities.

But there is a huge mismatch between how much biogenic CO2 is currently available and how much demand is expected from shipping, let alone other sectors such as aviation.

Around 2.5 million tonnes of biogenic CO2 is currently captured annually, more than 90% of which comes from bioethanol plants, with a project pipeline capable of capturing close to 40 million tonnes a year by 2030.

But while the IEA also notes that current policies could increase the potential availability of biogenic CO2 feedstock to 120 million tonnes a year by 2030, 150 million tonnes of CO2 would be needed to produce enough methanol to fuel 10% of marine transport — with another 200 million tonnes of the gas needed to produce enough e-kerosene to fuel 10% of aviation.

“It would not be possible to supply this amount of CO2 from low-cost biogenic sources alone, but it could be supplemented from kraft pulp mills where large amounts of biogenic CO2 are being released from the combustion of black liquor and bark and could be captured from flue gases,” the IEA warns.

Meanwhile, although direct air capture could allow carbon to be sourced independent of biomass, this technology is extremely nascent and expected to be prohibitively expensive. The IEA cautions that “if CO2 would need to be sourced directly from air, it would make low-emission e-methanol more than twice as expensive to produce as e-ammonia”.

The case for methanol

So why are shipping companies opting for more vessels capable of running on methanol rather than ammonia in the short term?

One reason could be the increased cost of managing safety. While both ammonia and methanol are hazardous chemicals, NH3 is toxic at much lower concentrations, necessitating extra costs for corrosion-resistant tanks and on-board safety measures such as spacing out storage, double piping, leak detectors and dedicated ventilation systems.

“The same safety precautions that are needed for ammonia handling make it also more costly to bunker [ie, fuel a ship],” the report notes.

While methanol is currently covered in the International Maritime Organization’s Interim Guidelines for the Safety of Ships Using Methyl/Ethyl Alcohol as Fuel, and engines capable of running on the fuel are already commercially available, the UN agency is yet to update its guidance for ships using low-flash-point fuels or those carrying liquefied gases in bulk to allow for ammonia to be used as a fuel.

So because methanol is more expensive to produce, but ammonia is more expensive to handle, vessels running on either fuel would have roughly the same 75% increase in total cost of ownership compared to ships using traditional fossil-based heavy fuel oil (HFO).

However, this also assumes lowest-cost biogenic sources of CO2, with the report cautioning that if direct air capture is used instead, the total cost of ownership for methanol-fuelled ships would be almost triple that of conventional vessels.

The IEA expects that while both ammonia and methanol will significantly push up the total cost of ownership for container vessels, this may only have a small impact on the final cost of transported goods.

“The ability to pass the costs along the value chain would depend on the terms of the shipping contracts, and on the existence of split incentives,” according to the report.

If the additional costs of green ammonia fuel and infrastructure were fully allocated to customers, they would only increase the shipping cost of one twenty-foot-equivalent unit (TEU) by $250, or less than 1% the $30,000-60,000/TEU value of transported goods.

The IEA calculates this would be equivalent to adding less than $0.01 to the cost of an avocado or an iPhone, or $1.50 to a two-by-one-metre solar panel.

However, the agency also estimates that in order for the maritime sector to use 10% e-fuels, this would necessitate half the currently containership fleet to be converted to running on ammonia or methanol, or 12 million TEU of shipping capacity to be built or retrofitted.

While methanol dual-fuel engines are currently commercially available at a slightly higher cost compared to HFO engines, large two-stroke engines running on ammonia are only expected to reach the market in 2025, while being 30% more expensive.

As such, the IEA estimates that “the investment needed to convert an HFO ship to ammonia is roughly double the investment of converting it to methanol”.

Since the cost of retrofitting needs to be paid off in the remaining years a vessels is in operation, this also means that only relatively new containerships — up to five years old for ammonia and up to ten years old for methanol — would be suitable for retrofitting.

As such, this means that the shipping capacity that would need to be newly built in the six years up to 2030 would total 9.5 million TEU if ammonia-fuelled and six million TEU if running on methanol.

The IEA calculates a total $75bn price tag for converting half of all containerships to only ammonia, but only $30bn for only methanol, although a final decarbonised fleet would likely be a mix of both. However, the agency also notes that these investments would “represent less than a 5% share of the cumulative shipbuilding market over the period of 2023-2030”.