Q&A: Ørsted envisions "demand-led P2X economy" with faster methanol than ammonia bunker uptake

Ørsted’s chief commercial officer for power-to-X (P2X) James Henry believes that e-methanol demand will outstrip supply in the long run, and argues that government funding support is paramount to bridge the cost-gap facing P2X fuels today.

PHOTO: Model of Ørsted's commercial-scale green methanol production facility FlagshipONE in Örnsköldsvik, Sweden. Liquid Wind

The shipping industry is increasingly turning to renewable methanol as a fuel alternative to reduce its carbon footprint. A.P. Møller – Mærsk and COSCO Shipping Lines are among the shipping giants with double-digit orders for methanol-fuelled vessels. And South Korean shipbuilder Korea Shipbuilding & Offshore Engineering (KSOE) recently received an order for a dozen methanol-fuelled vessels from an unnamed European company.

Danish multinational wind energy giant, Ørsted is tapping the potential of e-methanol as a fuel for shipping to meet this rising demand. In an exclusive interview with ENGINE, James Henry, chief commercial officer for P2X at Ørsted has explained the supply-demand equation and discussed whether e-methanol's projected price premium over conventional fuels could limit its adoption as a viable marine fuel.

What vessel types do you think will opt most for methanol as a fuel?  

E-methanol is emerging as a key fuel to decarbonise a broad mix of vessel types. Currently, we’ve seen new shipbuilding orders for container vessels, bulk carriers and ferries but also for vessels that operate in the offshore wind industry, where Ørsted is a leader. We also see continued interest in e-methanol coming from shipowners in many different segments of the maritime industry.

Do you think vessels with dual-fuel engines will actually run-on green methanol or switch to conventional fuels when methanol prices are uncompetitive?

We expect that demand for e-methanol will outpace supply significantly, and I think that will be a key factor in determining which fuels these ships will sail on. Price will obviously be an important factor, but the introduction of regulatory incentives and penalties, and an increasing willingness from end-customers to pay, will bridge the green premium to fossil alternatives.

As of today, you have a total of three e-methanol projects across the US Gulf Coast, Sweden and Denmark. Are you on track to begin production in 2025? What is the total demand you are projecting for e-methanol as a bunker fuel in this decade?

We’re well on track. This year we’ll start the onsite construction of FlagshipONE in Sweden and begin to produce 50,000 tonnes per year [50,000 mt/year] of e-methanol from that facility alone in 2025. We are developing several other projects in our pipeline that will expectedly come online from the middle of the decade. I can’t share our internal demand projections, but we strongly believe that the e-methanol market will be significant by the end of the decade, which is backed up by the many orders for dual-fuel vessels that we’ve seen this year.

PHOTO: A.P. Møller – Mærsk has signed a fuel offtake agreement with Ørsted to source up to 300,000 mt/year of e-methanol from Ørsted's US facility. A.P. Møller – Mærsk

A recent Clarksons report showed that as of 2022 there were 90 orders for ammonia-ready vessels and just 43 orders for methanol-ready vessels. Considering that methanol is more technologically mature and widely available to bunker than ammonia, why are we seeing more companies leaning towards ammonia as the fuel of choice? Do you see this scenario changing going ahead, in which e-methanol will be a more preferred choice for shipping companies than other low-carbon alternatives like blue or green ammonia?

We believe there’ll be demand for both e-methanol and e-ammonia in shipping, and we’re looking into both those fuels. Due to technology limitations and the availability of feedstocks, no single alternative fuel will be able to fulfill demand for the whole of the maritime industry in the short-to-medium term, given the scale of the decarbonisation challenge. Our view is that e-methanol will reach demand at scale ahead of e-ammonia, but we’ll see both play a significant long-term role in the decarbonisation of shipping.

What are your cost estimations for e-methanol, both from a cost of production perspective and market price perspective as a bunker fuel?

Methanol still comes at a price premium to fossil-based fuels, but we’re not sharing our cost estimates at this point.

Speaking on policy support, do you believe that the supply and demand for green fuels is best stimulated through minimum green fuels mandates (as proposed for FuelEU Maritime), or are carbon levy-based (IMO discussions) or cap-and-trade (EU ETS) approaches more preferable?

It’s not an either/or of mandates vs carbon pricing: Both supply- and demand-side policies are needed to solve the chicken-and-egg situation that the P2X sector is facing today. For the short- and mid-term, kick-start funding is needed to ramp up production and reap the cost-reductions from innovation and economies of scale. That includes financial support for both investments and operations, as well as regulatory clarity on definitions and standards. In parallel, stimulating the demand side pull is just as important and should become the main regulatory market driver in the long term. The cost-gap facing P2X fuels today should be bridged by a combination of measures. Besides the abovementioned financial support, carbon pricing is an important mechanism to make the price of fossil fuels reflect the environmental damage they incur.

Can government funding be enough in itself to stimulate development of green fuels production capacity and bunker infrastructure?

We should get to a demand-led P2X economy in the long run. Demand-side pull from policies like FuelEU maritime are therefore key. But there’s also a significant push from the industry itself, and I think the past years have shown that action from end-customers and the ship owners themselves have been driving a lot of the agenda. Regulation that helps close the price gap between green and fossil fuels will be crucial, but I think we’re likely to see – and are already seeing – a mix of corporate and government push to transform the shipping industry.

There has been a lot of recent discussions on moving towards nuclear energy as a source of renewable power to produce marine fuels. There was an announcement of a company building a floating nuclear power barge to power a hydrogen ammonia and plant. Do you believe you could shift towards using a form of nuclear energy to produce e-methanol in the future? 

There’s an abundance of low-cost solar-PV, onshore and offshore wind available to produce green fuels, and that’s where our focus is.

By Konica Bhatt

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