The latest global energy crisis could become a catalyst for change within maritime fuels, similar to how it has galvanized some policymakers' plans for more renewables, as the shipping industry looks at whether alternative fuels can mitigate shortages, Rystad Energy said in a research note on Thursday.
Tighter supplies of maritime fuels are helping improve the economics of emerging alternatives, some of which were already being looked at for their environmental benefits alone, the note says.
Rystad said the crisis is changing the investment case for biodiesel, which simultaneously faces intensifying feedstock competition from the aviation industry. Similarly, bio-liquefied natural gas currently looks attractive, but has a narrow range of applications and has underdeveloped logistics infrastructure.
The case for biomethanol use has strengthened, but supply constraints put a ceiling on its prospects for now, while E-methanol, a straight swap for biomethanol, has much higher production costs and lacks regulatory support.
Ethanol, which Rystad describes as a credible energy security fuel, is restricted to a small number of vessels that can use it, while ammonia requires both policymaker backing and infrastructure investment, it said.
Rystad said that this plethora of alternative fuels could gain more regulatory attention as their prior consideration, related to environmental benefits, is likely to grow more urgent with their potential to mitigate new energy security problems.
The main environmental compliance framework for maritime fuels, consists of the standards set by the International Maritime Organization's Net-Zero Framework and the EU's FuelEU Maritime regulation and its emissions trading scheme.
"The Hormuz crisis forces this to the front, opening an arguably more durable investment rationale for alternative fuels that does not depend on the survival of any regulatory regime," Rystad said.
There has been some market impact on maritime fuels since the early days of the conflict, with Singapore prices for very low sulfur fuel oil (VLSFO) and low-sulfur marine gas oil surging, more due to perceived risk of shortages than any occurrence of that.
Rystad Energy expects prices to peak between April and May. Market normalization is not expected until the middle of next year, it said.
While the economics for alternative fuels is improving, environmental lobbyists have been facing push-back on the ecological front. The Marine Environmental Protection Committee meeting, scheduled for October, faces growing opposition from the US, some major oil producers and Japan, all seeking to water down net-zero goals.
Rystad said the absence of regulation or presence of ambiguous regulation would be a worst-case scenario, with no strong regulatory signals on investment certainty for the production of these fuels.
It could also waste an opportunity that the crisis has provided, bolstering a political mandate for the adoption of cleaner fuels over and above the environmental benefits, Rystad notes.
"Those who move early to secure diversified and resilient fuel supply chains will be better positioned to absorb future shocks and to capture the commercial advantage that fuel flexibility increasingly represents," Rystad said.