Shipping Fuel Choices and Strait of Hormuz Risk

Geopolitical conflict in the Middle East and the closure of the Strait of Hormuz have spiked conventional bunker fuel prices, improving the relative economics of LNG and methanol. LNG remains the preferred transitional fuel due to its immediate cost-effectiveness and existing infrastructure.

Key Takeaways

• 1.The closure of the Strait of Hormuz has created an oil price shock that is making alternative fuels like LNG and methanol more cost-competitive relative to conventional bunker fuels.
• 2.LNG is currently the most attractive 'available now' hedge for shipowners, offering both commercial benefits and lower emissions compared to oil products like MGO.
• 3.While methanol and ammonia show promise, their climate benefits are limited unless blue or green variants are used; grey variants can actually increase carbon footprints.

Table of Contents

• Alternative fuels more attractive now as oil shoots higher
• Prices for Marine Gas Oil spiked due to the closure of the Strait of Hormuz
• Decarbonisation requires shift to lower carbon fuels
• LNG and blue and green versions of synthetic fuels can reduce carbon emissions from shipping
• Methanol gains traction faster than ammonia
• Methanol's CO2 footprint signals a downside; only blue and green deliver progress
• The oil shock narrows the methanol-oil price gap
• Price premium of synthetic fuels has narrowed now that oil prices are higher
• Why blue methanol is probably the attractive variant
• Ammonia remains on the radar: expensive now – promising in the long run
• LNG holds the best cards
• LNG vessels offer future flexibility for conversion to ammonia
• General momentum slowed amid policy headwinds
• All eyes on IMO as shipping needs a global carbon price to decarbonise
• Cost, security and climate goals
• Appendix: scenario assumptions and model explainer

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