Shipping Faces Biofuel Crunch as Demand Outpaces Supply: Rystad Energy

Rystad Energy says biofuels production capacity is falling short, creating a supply gap that could slow the transition. File Image / Pixabay

With pressure mounting to reduce emissions, the shipping industry is turning to marine biofuels and bio-LNG as a near-term solution.

Marine biofuels and bio-LNG can be burned with existing ship engines and help meet the IMO's greenhouse gas fuel intensity (GFI) standard.

But the supply of these fuels is falling far short of demand, according to consultancy Rystad Energy.

"In a scenario without supply constraints, global demand for biodiesel in shipping could exceed 140 million tonnes of fuel oil equivalent by 2028," Rystad Energy said in a note on its website.

Yet even in ideal conditions, production may only reach 120 million tonnes. When only cleaner, second-generation biofuels are considered, "this potential supply drops sharply to just 40 million tonnes."

Second-generation (2G) biofuels are produced from non-food biomass, such as waste or inedible plant materials, making them more sustainable and less competitive with food production than first-generation alternatives.

Bio-LNG faces a similar gap. Although shipping's demand by 2028 is forecast at 16 million tonnes, "over 84% of global biomethane is already committed to electricity generation, with an additional 10% allocated to road transport," leaving just 6% for other uses, including shipping.

Rystad Energy says the shipping industry cannot afford to overlook this supply crunch.

"Biodiesel and bio-LNG can be cost-effective under the IMO Net-Zero Framework, but only if their lifecycle greenhouse gas (GHG) emissions are low enough to qualify for IMO incentives, Junlin Yu, senior data analyst at Rystad Energy, said.

"However, demand for bio-LNG in maritime transport far exceeds current production, revealing a significant supply gap. To navigate the changing regulatory landscape, shipowners must act quickly, securing dependable biofuel supplies and aligning with GFI targets."

While future fuels like ammonia and methanol are still expensive and need new infrastructure, biofuels offer a quicker, simpler path to compliance.

"Biofuels stand out as the most practical route to meet the IMO's tightening emissions standards," Rystad notes.