HeyThe ongoing turmoil caused by conflict in the Middle East results in more than just increased operating expenses; It is actively reshaping the relative commercial viability of alternative fuels, according to experts at ING.
Historically, fuel strategies have been predictable calculations tied to compliance and marginal cost containment. However, the current environment has forced a strategic pivot towards dual fuel flexibility, operational flexibility, and security of supply.
ING’s Gerben Hemminga and Rico Lohmann recently examined two price scenarios from a northwestern European perspective. In a low-price environment where the Strait of Hormuz is fully open, conventional marine fuel behaves normally, with marine gasoil priced at $750 per ton. However, under a high price scenario dictated by a complete closure of the strait, the economy collapses. In this case, MGO prices rise sharply to $1,500 per ton, while the price of low-sulfur fuel oil doubles from $500 to $1,000 per ton.
As Hemminga and Lohmann note, the Middle East war has compressed supplies of oil and petroleum products to such an extent that conventional marine fuels bear the brunt of the volatility. Importantly, although natural gas and power inputs are also rising, they are not seeing the same huge jump. LNG, although affected, is benefiting from a wave of new capacity coming in, the stable presence of regional pipeline networks and domestic production.
This creates an economic distortion that changes the competitive field for alternative shipping fuels, the ING authors point out.
As the report notes, the high case scenario impacts oil products much stronger than gas and energy inputs, accelerating the shift in relative costs. “When oil product prices rise and gas prices rise less, the relative economics of LNG, methanol (to a lesser extent) and even ammonia improve rapidly, even if the absolute cost of all energy carriers rises,” Hemminga and Lohmann say. Therefore, LNG is the most attractive “there-now” hedge.
Total cost
The numbers support this conclusion. On an unsupported indicative basis, when fuel costs are measured in dollars per deadweight per 1,000 km cruised, the MGO index rises 97% from 0.38 to 0.75, and VLSFO rises 103% from 0.30 to 0.61. In contrast, the price of liquefied natural gas rose by a more modest 64%, moving from 0.25 to 0.41. This reality makes LNG not only a transitional option for decarbonisation, but also the most commercially attractive option for water today.
While liquefied natural gas has the strongest near-term appeal, the oil shock has breathed new life into the commercial momentum for synthetic fuels, most notably methanol.
Rapidly escalating fuel prices have narrowed the price premium that previously kept synthetic alternatives on the economic sidelines. Under the open strait scenario, green methanol carries a 85% price premium over MGO, while blue methanol carries a 45% price premium. Once the strait is closed and MGO doubles, the relative price gap shrinks to 42% for green methanol and 15% for blue methanol. Gray methanol, which is relentlessly derived from natural gas, drops to a negligible 5%. But Hemminga and Lohmann urge caution, reminding the market that petroleum products such as MGO and VLSFO remain fundamentally cheaper than the truly low-carbon blue and green synthetic variants.
Despite these cost barriers, methanol has significantly outperformed ammonia for commercial deep-sea use over the past three years due to several practical and systemic advantages. First, engine and vessel adaptations are simpler, faster, and require fewer system-level modifications than ammonia, which requires extensive redesigns and complex safety repairs. Second, because methanol remains liquid at ambient conditions, fueling and handling are much more straightforward. Third, it provides an instant “ready now/ready later” option. Methanol-ready dual-fuel ship orders allow shipowners to hedge their bets by operating on conventional fuels today while retaining the ability to transition as low-carbon supply chains mature.
Clean questions
However, switching to synthetic fuels does not automatically guarantee a cleaner footprint. The ING report reveals that conventional fuel generates approximately 1,900 to 1,950 kilograms of CO2 per tonne of dwt per 1,000 kilometers sailed, while LNG reduces this to 1,400 kilograms. For synthetic fuels, the ultimate climate benefit depends entirely on the production pathway. Green variants use electrolyzers powered by renewable energy, blue routes combine natural gas with carbon capture and storage, and gray routes rely relentlessly on fossil feedstocks. Because methanol molecules inherently contain carbon, combustion always releases carbon dioxide into the tailpipe. If the shipowner switches to gray methanol to bypass the expensive oil, the carbon footprint actually balloons to 2,500 kilograms. For gray ammonia, which is carbon-free in the tailpipe but consumes a lot of energy to make, the full wake footprint is up to 4,000 kilograms.
“Synthetic fuels can increase emissions if they are produced in an unsustainable way, because the production chain consumes a lot of energy and the carbon intensity of the inputs dominates the outcomes,” Hemminga and Lohmann said.
This fact underscores why blue methanol, rather than green, represents the most logical starting point for heavy industry in the near term. As the green hydrogen market remains confined to a pilot phase, blue synthetic pathways could expand much faster by leveraging existing gas infrastructure and domestic carbon capture systems. In the long term, ammonia remains firmly on the industry radar because its blue and green variants provide absolute carbon removal from the tailpipe. While current adoption is hampered by a 112% to 211% price premium on MGO in a closed strait scenario, market perception is shifting from “maybe no to maybe yes” as a long-term play, they say.
Ultimately, shipping costs represent less than 5% of the final price of consumer goods, meaning these macroeconomic shifts will barely be felt by the end consumer. However, for ship owners and charterers, the financial exposure is direct and severe. By investing in dual-fuel ships powered by LNG or methanol, operators can buy an “insurance policy” against an unstable world.
The surge early in the year proved to be a temporary high-tech anomaly rather than a sustainable economic recovery, leaving global supply chains and trade-dependent economies facing a volatile and challenging year.
Source: Baltic Stock Exchange
