Surging shipping demand points to looming biofuel supply crunch

June 3 ------ The maritime transportation industry’s ambition of net-zero carbon emissions has ballooned demand for biofuels. However, the capacity to produce these sustainable fuels is not keeping pace, with “unconstrained” biodiesel demand exceeding total supply.

According to Norway’s energy research and business intelligence company Rystad Energy, biofuels, which are compatible with existing ship engines and can, therefore, be adopted ‘with relative ease’, the capacity to provide biofuels like biodiesel and bio-liquefied natural gas (bio-LNG) and the overall outlook for bio-LNG are restricted in both allocation and production.

With emerging technologies and tightening regulations, shipping faces unprecedented pressure to innovate and make strategic investments. Rystad Energy has highlighted that biofuels could represent a more cost-effective solution compared to conventional marine fuels (like very low-sulfur fuel oil, or VLSFO), especially when aligned with the low-emission thresholds established by the International Maritime Organization’s (IMO) Greenhouse Gas Fuel Intensity (GFI) standard.

As divulged, while blending biofuels at 30% or 50% can help meet emission targets in the short term, fully switching to 100% low-emission versions offers the biggest long-term savings and rewards. Notably, bio-LNG stands out as a cheaper option than biodiesel, particularly when supported by government subsidies.

In a scenario where there are no supply constraints, Rystad Energy spotlighted that global demand for biodiesel in shipping could go well past a 140 million tons of fuel oil mark by 2028. That said, even under ‘perfect’ conditions, total biofuel production capacity is not projected to peak over around 120 million tons, which could drop sharply to just 40 million tons when sustainability criteria—prioritizing cleaner, second-generation biofuels—are applied.

When production risks, actual output levels and competition from other sectors are taken into account, the volume of biofuels realistically available for the maritime transportation industry dwindles even further, the company’s report has stressed. “The situation with bio-LNG is also constrained, with challenges for both production and allocation capacity. While projected demand is relatively modest at 16 million tons in fuel oil equivalent by 2028, the apparent surplus in supply is misleading,” Junlin Yu, Senior Data Analyst, Shipping, Rystad Energy, elaborated. “Over 84% of global biomethane is already committed to electricity generation, with an additional 10% allocated to road transport. This leaves only 6% available for all other sectors, including maritime, making actual access far more limited than the numbers suggest,” Yu further underscored.

The company’s report has stressed that this supply crunch cannot be overlooked. Even though future-facing fuels like ammonia and methanol are believed to offer ‘long-term’ promise, they come with a hefty price tag as well as with infrastructure challenges that have left shipowners hesitant and waiting for clearer market signals. What is more, biofuels may be a more practical road to net zero, but Rystad Energy cautioned that without careful planning and proactive steps, the bridge to compliance could nevertheless crumble.

Per Yu, biodiesel and bio-LNG can be cost-effective under the IMO Net-Zero Framework, but ‘only if their lifecycle greenhouse gas (GHG) emissions are low enough to qualify for IMO incentives.’ “Demand for bio-LNG in maritime transport far exceeds current production, revealing a significant supply gap. To navigate the changing regulatory landscape, shipowners must act quickly, securing dependable biofuel supplies and aligning with GFI targets. In the race for cleaner shipping, success hinges not just on choosing the right fuel but on securing it ahead of competitors,” she explained.

Norway-headquartered classification society DNV drew similar conclusions. In a January 2025 report, DNV pointed out that the long-term use of biofuels could be hindered by limited supply in the future. The classification society’s analysis showed that in 2023, the maritime sector consumed 0.7 million tons of oil equivalent (Mtoe) of liquid biofuels, representing only 0.6% of global supply and 0.3% of shipping’s overall energy use.

At the time, Knut Ørbeck-Nilssen, CEO of Maritime at DNV, put forward that although this alternative fuel is largely seen as a favorable solution, shipowners and operators would benefit more from exploring energy efficiency measures and clean fuels as part of their broader climate neutrality-oriented strategies, while using biofuels ‘when available and affordable’.

Nevertheless, the shipping industry has had a complicated relationship with biofuels so far. Germany’s container shipping heavyweight Hapag-Lloyd, compatriot environmental association NABU, and a number of other companies, as well as non-governmental organizations, have urged the IMO to remove ‘unsustainable’ biofuels from its list of alternative fuels.

In a February 2025 joint call, Hapag-Lloyd, NABU and a group of other players highlighted the challenges related to biofuels, warning that these energy sources show the potential to “exacerbate the biodiversity crisis.”

Specifically, the consortium warned that biofuel production, particularly from crops like corn or soy, can lead to deforestation and land use changes, impacting biodiversity and habitats. Additionally, it has been found that biofuels can contaminate water sources. Biodiesel, for instance, can be susceptible to microbial growth and degradation, requiring specialized storage and handling to prevent water contamination. That same month, 69 NGOs issued a similar call, opposing the application of biofuels in international shipping and urging stakeholders to turn toward “genuine clean energy.”

Source: offshore-energy.biz