The shipping industry’s target of net-zero carbon emissions has boosted demand for biofuels, which are compatible with existing ship engines and therefore can be adopted relatively easily. However, Rystad Energy analysis shows that the capacity to produce biofuels—such as biodiesel and bio-liquefied natural gas (bio-LNG)—is not keeping up. Unconstrained biodiesel demand exceeds total supply and the outlook for bio-LNG is equally restricted, in both allocation and production.
Biofuels could be a more cost-effective alternative to traditional marine fuels such as very low-sulfur fuel oil (VLSFO), particularly when aligned with the low-emission thresholds established by the International Maritime Organization’s Greenhouse Gas Fuel Intensity (GFI) standard. In a scenario without supply constraints, global demand for biodiesel in shipping could exceed 140 million tonnes of fuel oil equivalent by 2028. However, even under ideal conditions, total biofuel production capacity is expected to peak at around 120 million tonnes. When sustainability criteria are applied—prioritizing cleaner, second-generation biofuels—this potential supply drops sharply to just 40 million tonnes. Taking into account production risks, actual output levels, and competition from other sectors, the volume of biofuels realistically available for shipping diminishes even further.
As new technologies emerge and regulations tighten, the pressure on the shipping industry to innovate and invest wisely has never been greater. With global shipping racing to decarbonise, the conversation will focus on the search for cleaner, scalable fuel solutions that can power the industry’s future. This is a supply crunch that the shipping industry cannot afford to overlook. While future-facing fuels such as ammonia and methanol offer long-term promise, they come with high costs and infrastructure challenges, leaving many shipowners hesitant and waiting for clearer market signals.
In the meantime, biofuels stand out as the most practical route to meet the IMO’s tightening emissions standards. However, this transitional solution is fragile. Without careful planning and proactive action, the bridge to compliance could quickly erode.
Biofuels are currently more cost-effective than traditional marine fuels, especially when they meet strict low-carbon standards. While blending biofuels at 30% or 50% can help meet emission targets in the short term, fully switching to 100% low-emission biofuels offers the greatest long-term savings and rewards. Notably, bio-LNG stands out as a cheaper option than biodiesel, particularly when supported by government subsidies, making it a promising fuel for the shipping industry’s transition to cleaner energy.
Source: Rystad Energy