Navigating net-zero: Biofuels promise cleaner shipping, but supply is limited

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 tons of fuel oil equivalent by 2028. However, even under ideal conditions, total biofuel production capacity is expected to peak at around 120 million tons. When sustainability criteria are applied—prioritizing cleaner, second-generation biofuels—this potential supply drops sharply to just 40 million tons. 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. That urgency sets the stage for the upcoming Rystad Talks Energy: Full Steam Ahead – LNG, Biofuels, and the Future of Maritime Energy on 28 May. Rystad Energy CEO Jarand Rystad will join DNV Maritime CEO Knut Ørbeck-Nilssen to explore how maritime leaders can chart a course toward net-zero emissions. With global shipping racing to decarbonize, the conversation will focus on the search for cleaner, scalable fuel solutions that can power the industry’s future.

“Demand for biodiesel, if unrestricted, outstrips the total supply. The situation with bio-LNG is also constrained, with challenges for both production and allocation capacity. While projected demand is a relatively modest at 16 million tons in fuel oil equivalent by 2028, the apparent surplus in supply is misleading. 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,” says Junlin Yu, Senior Data Analyst, Shipping at Rystad Energy.

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.

“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. However, 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,” adds Yu.

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.