China International Capital Corporation: Optimistic on China's Development Trend of Green Methanol as a Shipping Decarbonization Fuel

CICC Research Report states that the global shipping companies driven by policies or spontaneous decarbonization trends are still expected to continue strengthening. At the same time, China’s development of green fuels, represented by green methanol, helps promote the non-electric utilization of new energy and ensures energy security. We are optimistic about China’s development of green methanol as a decarbonization fuel for shipping. Green methanol projects that can secure high-quality overseas customers are expected to benefit first. We favor new energy equipment companies and green power operation companies that can take the lead in building and deploying green methanol capacity and locking in orders.

CICC believes that in the next 1-2 years, green methanol may still be in short supply, but it will also test project order locking and production stability.

Full Text Below

CICC | Green Methanol Industry: Starting with Shipping Decarbonization, Short-term Policy and Orders, Cost Reduction and Production Stability Determine Long-term Space

CICC Research

China’s green methanol is accelerating its investment. We believe that in the next 1-2 years, green methanol may still be in short supply, but it will also test project order locking and production stability.

Summary

While overseas shipping decarbonization policies continue to be developed, short-term green fuels still rely on premium acquisitions. The EU will include shipping in its carbon emission system starting in 2024 and will enforce the EU Maritime Fuel Regulation from 2025, penalizing ships that do not meet the standards. Additionally, the IMO Net Zero Bill is the first global shipping carbon pricing mechanism, which, if passed by vote, could significantly promote the application of decarbonization fuels worldwide. Among low-carbon/zero-carbon fuels, we believe green methanol is an important development direction in the short to medium term. However, our calculations show that before 2030, the penalties for traditional fuel carbon emissions under these shipping decarbonization policies are relatively low, and in the short term, low-carbon/zero-carbon fuels like green methanol still rely on premium acquisition by shipowners.

China’s development of green methanol is supported by policies, with downstream order locking being a short-term focus. We believe that China’s development of green fuels aligns with the “14th Five-Year Plan” for new energy non-electric utilization and helps ensure energy security. It is expected to receive continuous policy support domestically. By the end of 2025, China plans to have over 60 million tons of green methanol capacity, but actual production is only about 1%, and most projects are still far from their nominal capacity. We believe that globally, green methanol will still be in short supply over the next 1-2 years. Therefore, securing overseas customer orders in the short term is crucial, and cost reduction and process stability will determine the industry’s long-term development potential.

We believe that the trend of policy-driven or spontaneous decarbonization in global shipping will continue to strengthen. At the same time, we think China’s development of green fuels, represented by green methanol, will help promote the non-electric utilization of new energy and ensure energy security. We are optimistic about China’s development of green methanol as a shipping decarbonization fuel. Green methanol projects that can connect with high-quality overseas clients are expected to benefit first. We favor new energy equipment companies and green power operation companies that can lead in capacity building, deployment, and order locking.

Risks

Poor implementation of overseas shipping decarbonization policies; high production costs of green methanol; changes in green methanol certification standards.

(Source: First Financial)