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Cost of Implementation

Abbreviations:

  • ECA: Emission Control Area, where ships are required to adhere to stricter emissions restrictions as set by the International Maritime Organization (IMO)
  • HFO: Heavy fuel oil
  • LNG: Liquified natural gas
  • MGO: Marine gas oil

The long-term economic cost of methanol can be estimated from a shipowner’s perspective and a methanol producer’s perspective.

Shipowner’s Perspective

Shipowners consider the payback period for running a ship using methanol, which is the amount of time it takes the savings derived from fuel cost to recover the money that was invested in building or retrofitting the ship. 

Here is a comparison between the costs of retrofitting an existing Ro-Ro cargo ship, or a cargo ship that vehicles can drive on and off, with “24,000 kW installed main engine power and tank capacity for 3 days sailing”, and the costs of building a new Ro-Ro cargo ship that has a methanol fuel system.[1] “Ro-Ro Definition & Meaning – Merriam-Webster.” n.d. Accessed November 22, 2021. https://www.merriam-webster.com/dictionary/Ro-Ro. [2]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading Both ship systems have the same engine power and tank capacity. 

Building a New Vessel with Methanol Fuel System[3]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading

System ComponentCost (USD)
Engine and bunkering equipment5.5 million
Storage of methanol0.1 million
Total additional costs for adapting to methanol as a fuel for new ship builds 5.6 million

Retrofitting an Existing Ship with the Methanol Fuel System[4]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading

Note that a Ro-Ro cargo ship is a different type of ship than the dry bulk carrier type analyzed on the following page, so estimated costs vary slightly.

Cost of Retrofitting Engines

For specific information about what is included in an engine retrofit, see here.

Engine Retrofit

System ComponentCost (USD)
Engine3.5 million
Safety System3.5 million
Shipyard Costs3.5 million
Total costs for a Retrofitted Ship10.5 million

In a study on the economic costs of methanol fuel systems, the Det Norske Veritas (DNV) assurance and risk management company calculated the payback period of ships with methanol fuel systems. They did these calculations in four scenarios with the following constant conditions:

  • Ships use up to 21,000 tonnes of methanol in ECAs, which is equivalent to 9,900 tonnes of MGO. These quantities were derived from the fact that the energy density of methanol is approximately 20 MJ/kg while the energy density of MGO is approximately 42 MJ/kg. Thus, the quantity of methanol fuel needed is about 2.1 times the quantity of MGO fuel[5]Neutrium. “Energy density,” March 26, 2014 www.neutrium.net/properties/specific-energy-and-energy-density-of-fuels/[6]Aronietis, Raimonds & Sys, Christa & van Hassel, Edwin & Vanelslander, Thierry. (2016). Forecasting port-level demand for LNG as a ship fuel: the case of the port of Antwerp. Journal of … Continue reading. 
  • Fuel costs were calculated for 15 years after the initial capital investment in building a new ship or retrofitting an existing ship[7]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading.
  • The discount rate (8%) is the rate applied to the shipowner’s future payments to determine the present currency value of the future payments[8]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading. 
  • Low price of MGO in Rotterdam, Netherlands: 450 USD/tonne[9]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading
  • High price of MGO in Rotterdam, Netherlands: 865 USD/tonne[10]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading
  • To comply with regulations in ECAs, ships currently use HFO with a scrubber or LNG. Ships can also use LNG to comply with ECA regulations, but the study didn’t estimate the costs of LNG powered ships and stated that LNG has “high capital costs”[11]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading. So, the payback period of methanol powered ships was only compared to the payback period of HFO powered ships using scrubbers.
    • Building a new ship with a scrubber costs 3 million USD[12]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading.
    • Retrofitting a ship to use a scrubber costs 6 million USD[13]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading.
Price of MGO(USD/tonne)Competitive Price of Methanol (USD/tonne)Payback Period of Methanol(years)Payback Period of HFO and scrubber(years)
Build a new ship450852.52.4
Retrofitted ship450855.35.4
Build a new ship8652041.51.5
Retrofitted ship8652043.13.2

Example of how the Payback Period was Calculated

  • A newly built ship uses 9,900 tonnes of MGO (equivalent to 21,000 tonnes of methanol), the price of MGO is 450 USD/tonne, and the price of methanol is 159 USD/tonne.
    • Initial investment (cost of building the ship): 5.6 million USD
    • MGO fuel cost: 9,900 tonnes * 450 USD/tonne

Methanol fuel cost: 21,000 * 159 USD/tonne

Thus, the amount of money saved from using methanol instead of MGO is 

9,900 tonnes * 450 USD/tonne – 21,000 * 159 USD/tonne = 1.1 million USD. This difference is known as the cash flow. 

  • Increase/decrease in cash flow per year is 0%
  • Number of years that fuel cost is calculated for after the initial investment: 15
  • Discount rate: 8%

After substituting the values into this payback period calculator, the payback period is 6.8 years.

Analysis of Payback Period Calculations

Methanol prices from 2007-2021 [14]Methanex Corporation. “Annual Information Form.” 2020 AIF – FINAL, 5 March 2021, www.methanex.com/sites/default/files/investor/annual-reports/2020%20AIF%20-%20FINAL.pdf

  • The competitive price of methanol is the cost of methanol fuel per tonne such that the payback period of methanol powered ships is minimized and similar to the payback period of HFO powered ships using scrubbers. 
  • In the low MGO price scenarios (MGO price: 450 USD/tonne), the competitive price of methanol was 85 USD/tonne. From 2000 to 2021, the price of methanol fuel has never decreased to a price below 100 USD/tonne. It is unlikely that the price of methanol will decrease to 85 USD/tonne. Thus, building and retrofitting methanol powered ships is not a profitable investment when the price of MGO is low.
  • In the high MGO price scenarios (MGO price: 865 USD/tonne), the competitive price of methanol was 204 USD/tonne. The price of methanol was less than or approximately 200 USD/tonne from January 2009 to May 2009. Thus, the competitive price of methanol in the high MGO price scenarios is realistic and building or retrofitting methanol powered ships can be a profitable investment. 
  • For the high MGO price scenario, the payback period of a newly built methanol powered ship is 1.5 years while the payback period of a retrofitted methanol powered ship is 3.1 years. Investing in a newly built methanol ship is less risky than investing in a retrofitted methanol ship because the price of fuel is unpredictable and can fluctuate more over a longer period of time. Thus, investing in a newly built methanol powered ship can be a more profitable investment than investing in a retrofitted ship when the price of MGO is high.

Methanol Producer’s Perspective

From 2002 to 2015, there wasn’t a correlation between the price of methanol and the price of natural gas because the natural gas used to produce methanol was a waste product from oil production. If the demand for methanol increases, methanol would be produced from natural gas in pipelines in large quantities instead of only using natural gas that is a waste product of other chemical processes. Thus, the price of methanol could become dependent on the price of natural gas[15]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading. When methanol was produced from natural gas at a maximum energy efficiency of 70% and natural gas cost about 355 USD/tonne in 2015, the minimum selling price of methanol was 216 USD/tonne[16]Laselle, Sarah, and Havard Abusdal. “Methanol as marine fuel: Environmental benefits, technology readiness, and economic feasibility.” Methanol Institute, DNV GL, 20 January 2016, … Continue reading. This minimum selling price is close to the competitive price of methanol (204 USD/tonne) from a shipowner’s perspective in the high MGO price scenario. Thus, 216 USD/tonne can be a competitive price for methanol if ships travel in ECAs for long periods of time and MGO is at a high price. The minimum selling price of methanol also shows that it is very unlikely that the price of methanol would be 85 USD/tonne, so methanol is not an economically viable option for low MGO price scenarios.

That said, the sustainability of methanol as an alternative marine fuel hinges on its ability to be produced from green hydrogen. This is a more expensive process, and more research is needed to determine the future costs of green methanol.

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