• With new regulations such as FuelEU Maritime and the forthcoming International Maritime Organization Net-Zero Framework set to increase the cost of greenhouse gas (GHG) emissions, there is a clear incentive for the industry to adopt low-GHG fuels. Hydrogen-based alternative fuels such as e-ammonia and e-methanol present a significant opportunity for reducing GHG emissions, offering a promising path towards a sustainable future for the maritime sector.

• While the current supply of these fuels is limited, they have the potential to scale up. Resolving critical offtake challenges is essential to unlock this potential. This article evaluates potential constraints that could affect the maritime sector’s ability to secure fuels with zero or near-zero GHG emissions in the near- and medium-term. To do this, we evaluated data from stakeholder surveys of upstream (fuel producers) and downstream (shipowners and operators) firms around constraints limiting the offtake agreements that fuel producers require to increase the supply of these “scarce molecules.”  

• Three high-level findings emerge. First, upstream and downstream players face fundamentally different risks: fuel producers and developers prioritize robust offtake agreements, while shipowners focus on managing and passing along higher costs of low-emissions fuels. Second, for upstream project developers, securing an effective offtake contract dominates over concerns about feedstock or engineering, procurement, and construction (EPC) risks. Third, cost-effective energy is a necessary but not sufficient condition for broad-based adoption of low-emissions fuels. Regulatory clarity and operational learning also matter: for example, shipowners and operators see certification and the safe handling of toxic low-emissions fuels as key risks.  

• Encouragingly, financing is not expected to be a major hurdle if robust offtake agreements are in place, allowing producers to mitigate risks. Similarly, vessel owners and operators do not see access to finance for dual-fuel vessels as a key issue if they have confidence they can adequately manage and pass through cost increases from low-emissions fuels.    

• Our findings suggest that shipowners and operators should already be focusing on determining the strategic value of securing their supply of low-emissions fuels. The sector works today on a spot basis in highly liquid markets. By contrast, securing these low-emissions fuels will require long-term offtake agreements to give producers the revenue certainty they need.

The 2023 International Maritime Organization (IMO) Strategy on Reduction of GHG Emissions from Ships (the 2023 IMO GHG Strategy) sets a goal of reducing well-to-wake (WTW) emissions from international shipping to meet “indicative checkpoints”: a 20%-30% reduction by 2030, a 70%-80% reduction by 2040, and achieving net-zero emissions by or around 2050. WTW here refers to the sum of well-to-tank (WTT) and tank-to-wake (TTW) emissions, meaning GHGs generated in both the production of a fuel and its combustion to power a vessel.

In April 2025, IMO Member States agreed upon a set of regulations, collectively called the IMO Net-Zero Framework (NZF), to help achieve these targets. (Countries will formally vote to adopt the regulations in October 2025). The NZF builds on decarbonization incentives already set up under the EU’s FuelEU Maritime (FEUM) regulations, which entered into force in January 2025. While FEUM applies to all voyages to and from European ports, it has limitations. For example, only half the emissions from voyages with a non-EU leg are counted. In contrast, if the NZF is approved, the regulations will be enacted globally when they enter into force in 2027.  

The NZF regulatory toolkit includes multiple interlocking elements: a WTW scope that accounts for emissions both from producing a fuel and its combustion; a two-tiered tradeable performance standard that sets a maximum intensity or rate of emissions averaged over time in terms of emissions per energy unit (for example, gCO2eq/MJ); differential penalty rates, or remedial units (RUs), for exceeding the fuel standard; incentives for zero- or near-zero fuels (ZNZs) with intensities below pre-set limits; and the ability to monetize over-performance relative to the lower tier of the performance standard (selling surplus units, or SUs).

Figure 1 shows a Mærsk Mc-Kinney Møller for Zero Carbon Shipping (MMMCZCS) visualization of the IMO outcome document (“Report of the nineteenth meeting of the Intersessional Working Group on Reduction of GHG Emissions from Ships (ISWG-GHG 19) and the Working Group on Reduction of GHG Emissions from Ships”: MEPC 83/WP.11, April 10, 2025, IMO Marine Environment Protection Committee). Note: 95% in 2050 is not part of the text but an assumption used for the curves. The direct compliance curve is also not defined post-2035, and we assume that the 13% width between Tier 1 and Tier 2 is retained through to 2050. ZNZ reward schedule is not shown.

Figure 1 was originally published as an MMMCZCS output.  

The regulatory tools set the relative costs of different fuels and technologies. Using fossil fuels such as low-sulfur fuel oil (LSFO) would become increasingly expensive.[1] For example, applying the regulations would drive an increase in the cost of LSFO from an indicative 500 USD/tonne in 2028 to 824 USD/tonne by 2032 — an increase of nearly 65%.  

Finally, to increase the supply of the lowest-emissions fuels for shipping, the strategy also calls for 5-10% of the international fleet’s energy mix to come from ZNZ fuels, energy sources, and technologies by 2030. The proposed NZF defines these fuels as those emitting less than 19 gCO₂eq/MJ through to 2034, reducing to 14 gCO₂eq/MJ thereafter.

We focus on evaluating limitations and risks that may hinder offtake agreements from the shipping sector by studying a subset of ZNZs: low-emissions hydrogen-based fuels, specifically “green” or “blue” ammonia and methanol. We were unable to include low-emissions hydrogen-based methane in our analysis due to a lack of comparable data on production volumes.

These fuels can offer large emissions reductions compared to fossil fuels (such as LSFO and LNG) but are relatively costly compared to other alternative fuels. By increasing the cost of a range of higher-emissions fuels and incentivizing ZNZs, the NZF may drive demand for low-emissions fuels. In turn, scaling up production of these fuels by selling into the maritime market can drive cost reductions that make the fuels more competitive in other hard-to-abate sectors without a regulatory framework.

Combining data on fuel production capacity with the scale-up required to meet the 5%-10% target for ZNZ fuel uptake shows the size of the market opportunity. Meeting the targets will require shipping to secure two to nearly five times the reported 2030 low-emissions ammonia capacity that is currently operational, under construction, or at final investment decision (FID). For methanol, the requirement is seven to nearly 15 times.

Table 1 presents an indication of the scale-up required to meet the 2030 ZNZ target using low-emissions ammonia or methanol. Calculations: fleet-wide energy demand net of energy efficiency forecast based on integrated modeling using NavigaTE. Conversions using lower heating values. Calculations of scale-up multiples are based on capacity and project status in Rystad Energy data cited in Figure 2, below. Capacity is “green” or “blue” ammonia or methanol for delivery up to and including 2030 that is currently operational, under construction, or has achieved FID. 

Learn more about NavigaTE.

Our analysis of asset-level data for low-emissions ammonia and methanol with a target first batch in 2030 or before shows most production remains contingent, in projects without an FID. For low-emissions ammonia, there is more than four times (4.3x) the potential capacity at pre-FID stages than the capacity that has achieved an investment decision. The equivalent figure for low-emissions methanol is similar (4.28x).

Figure 2 presents data from Rystad Energy (2025), Hydrogen Cube (Hydrogen Market, Ammonia Market, Methanol & Synthetic Fuel Market dashboards). MMMCZCS analysis. Sample depicted are assets producing “green” and “blue” ammonia or methanol with a reported startup date of 2030 or earlier. LoI is letter of intent; EIA is environmental impact assessment; FEED is front-end engineering design; FID is final investment decision. Labels are rounded figures.

Scaling up the supply of these low-emissions fuels and bringing down their unit costs requires more capacity to come online. To do this, developers require long-term fuel offtake agreements on the order of 10 years or longer to capitalize their projects (seeking financing, generally from project finance providers and specialist lenders) or, for producers using balance sheet financing, to enable the project to meet the firm’s return on investment hurdle.*

To be bankable in this context, an offtake agreement needs one or more creditworthy offtakers who can assure a steady cashflow to the project company for a committed volume of fuel over a meaningful timeframe. This enables the project to meet its debt service payments, operating costs, and investors’ return expectations.** If the offtaker is not creditworthy, this raises the risk they will fail to pay for promised volumes or capacity, or will breach the offtake agreement in other ways. If that risk is high, financing partners will not lend to the project.  

Information on existing offtake terms for these fuels is limited because contracts are commercially sensitive. Available data on offtake arrangements for low-emissions ammonia and methanol for delivery by 2030, presented below, correspond to just 5.4 megatonnes per annum. Of this, only a fifth is secured through binding offtake agreements or earmarked for own consumption.*** (Binding offtake agreements create a legal obligation to purchase current or future output and generally include termination clauses.) Despite the potential impact of FEUM and the IMO NZF, less than 5% (0.26 out of 5.4 Mtpa) of reported offtake for these derivatives is currently to the shipping sector. Of this, the majority (88%) is taken off by a single group of related companies.

Figure 3 data is shown as megatonnes of low-emissions ammonia or methanol per year (Mtpa) for delivery by or before 2030 from “Hydrogen Offtake Agreement Database 2.1,” BNEF. December 19 2024. Data is the subsample of “green” or “blue” ammonia and “green” methanol with first delivery in 2030 or before.

To identify barriers that prevent fuel producers and shipping companies from entering the long-term offtake agreements needed to catalyze fuel production, we conducted a structured survey with key stakeholders from across the maritime value chain.  

The group includes representatives of seven producers/developers from the fuel industry in the US, Europe, and Asia, and prospective offtakers from the container and tanker segments. Although not representative of the entire industries, this sample is still meaningful. For the upstream side, fuel production projects involving one or more firms interviewed account for more than 9% of the subsample of offtake data set out in Figure 3. Meanwhile, the downstream participants interviewed collectively own and/or operate over 1,300 vessels.  

To segment the full set of constraints that could reduce the ability of both sides of this value chain to secure long-term offtake agreements, we built "fishbone” diagrams to identify principal risks and their subcomponents. Figure 4 is a simplified version of these diagrams, showing examples of the range of concerns that companies may aim to address.

Figure 4 shows examples of constraints and risks gathered from a comprehensive segmentation developed by the MMMCZCS and A&O Shearman. The full segmentation was used as the basis for the quantitative survey. Abbreviations: IMO (International Maritime Organization), IGF (International Code of Safety for Ships using Gases or other Low-flashpoint Fuels), DF (Dual Fuel), EPC (Engineering, Procurement and Construction).

Building on these diagrams, a fifty-point survey completed by these up- and downstream representatives elicited input on the concerns, risks, or constraints that might prevent offtake agreements from being agreed, including the likelihood and impact of each. The product (likelihood multiplied by impact) is a proxy for expected cost. For example, a 20% chance of losing 10, or -2, is worse than a 1% chance of a 100 loss, or -1. We call these "ratings” and scale each risk by the average rating to identify which ones are relatively important to these stakeholders. This does not mean that less important risks are not material, but that market participants in our sample, on average, see them as relatively less likely, less severe should they occur, or both.

There are three high-level conclusions:  

First, upstream and downstream firms must mitigate fundamentally different risks. Fuel producers and project developers focus on structuring robust offtake agreements, a prerequisite for access to financing (Figure 5). Shipowners and operators focus on managing or passing on the increased cost of compliance (Figure 6). 

Producers/developers rated concerns related to offtaking as the critical barrier to overcome (1.8x the average rating). These concerns include the counterparty risk arising from a mismatch between contracted and market prices (incentivizing the offtaker to renege on the contract) and concerns, from the producer’s perspective, about being locked into a non-competitive sales price due to rising input costs.**** The most severe feedstock-related risks (such as sourcing sufficient biogenic CO2 required for low-emissions methanol production) also matter for this group but are lower-rated. (The supply-side constraint on biogenic CO2 is corroborated by an earlier MMMCZCS study).[2]

Figure 5: Upstream constraints.

Policymakers are focused on structuring incentives for fuel production through mechanisms such as the US Inflation Reduction Act of 2022, the EU Hydrogen Bank's auctions, the Alternative Fuel Infrastructure Regulation (EU 2023/1804), or Japan’s Hydrogen Society Promotion Act. Building on this, producers and developers did not perceive securing investment as a constraint on scaling up low-emissions fuels in shipping. Financing was rated the lowest overall constraint (0.3x the average rating). Importantly, this relatively low ranking is contingent upon existing policy support and securing a bankable offtake agreement.  

Downstream market participants, on the other hand, are primarily focused on managing the revenue risks of maritime fuels with lower emissions and higher costs. These participants’ top concern is contracting arrangements – how to pass through higher fuel costs from sustainable maritime fuels to cargo owners and other customers, the so-called bunker adjustment factor (BAF) clause (1.8x the average rating). This clause determines the additional charges added to the base rate, which, among other functions, help to absorb fuel cost volatility. This reflects owners’ and operators’ current market environment of bunkering fuels at spot or shorter-term rates, rather than securing long-term fuel supply through offtake and related long-lived agreements. Effectively passing through higher costs is more important than supply-related issues such as sourcing dual-fuel engines or shipyard capacity for commissioning dual-fuel vessels, and even the overall risk of using low-emissions fuels. Overall, concerns such as bunkering and ship management or safety for low-emissions fuels were rated as no more severe than average. Finally, mimicking the upstream view, financing of capital expenditure (CapEx) for new dual-fuel vessels through mortgage or balance sheet financing is the least binding limitation (0.3x the average rating).

Figure 6: Downstream constraints.

Second, among the most severe constraints for upstream players, early termination of offtake contracts and reduction in price and demand after offtake term are the dominant concerns. Additionally, feedstock-related risks, including the regulatory definition of renewable CO2, are perceived as a significant constraint (see Figure 7).

Analysis based on group averages could obscure individual risks. To identify critical risks that may be particularly salient for upstream or downstream firms, we moved beyond the category averages to focus on risks that lie in the top 10% of ratings for each group, upstream or downstream. Our goal here was to identify the most binding challenges.

Figure 7: Upstream constraints in the top 10% of ratings. EPC is engineering, procurement, and construction.  

Fuel producers and project developers perceive many sub-categories of constraint as high-impact. Elements of effective (creditworthy) offtake drive the “market and counterparty” category to be the main perceived limitation facing the sector. But examining the highest impact ratings shows that producers are also concerned with the medium- and long-term revenue risks that could affect their projects, such as a decline in prices and demand after the offtake agreement ends, or market movements that make the agreed offtake price unattractive.  

Some of the costs of these perceived risks can be mitigated by scaling up existing public policy interventions, such as subsidies for low-emissions fuel production or consumption. Others are more challenging and may require more creative policy support. For example, if unit costs decline quickly over time, earlier-generation facilities may become uncompetitive once the terms of their offtake agreements expire. (Even a ten-year binding offtake agreement with a creditworthy counterparty addresses less than half the modeled ~25-year life of a fuel production facility).  

The trade-off for the offtaker lies between an agreement with a longer duration, which reduces the unit costs of the low-emissions fuel (because the financing and capital costs are amortized over more units of output), and the market risk of being locked into a price above the market price, which increases with the duration of the offtake agreement. Even the engineering, procurement, and construction-related risks that fall within this 10% cutoff have lower ratings than those related to securing effective offtake agreements. The lesson is that, for now, offtake remains the critical perceived issue for scaling production, but residual risks related to a fast-evolving market and changing demand also factor into the challenge of achieving FID.  

Third, in addition to the contractual structure to pass on the additional compliance cost, shipowners and operators rate certification and safe handling of fuels as severe constraints (see Figure 8).

Only four specific sub-categories of risk appear in the top 10% of ratings for shipowners and operators. (Again, these are individually highly rated, though their groupings on average might not be). For these stakeholders, commercial contracts that allow costs to be passed through to consumers, and the complexity of contracting when the same vessel may carry cargo for both “green” and traditional cargo owners, are important (comprising two of the only four risks in the top 10% of risks for this group).

Figure 8: Downstream constraints in top 10% of ratings.

The survey shows, however, that safely handling and using low-emissions ammonia (1.9x the average rating) and ensuring the bunkering agreements have robust carbon intensity certification (1.7x the average rating) are also important. This suggests that regulations and operations still have critical roles to play. Solving operational and safety considerations is another important area of work to enable the maritime value chain to be a credible offtaker.

The survey results and the anticipated supply constraints presented here suggest an urgent need to resolve offtake challenges. The binding constraints on lowering emissions intensity for international shipping fleets comprise contractual uncertainty for owners and operators (downstream) and securing credible offtake agreements from these players for fuel producers (upstream). Securing financing for dual-fuel vessels or for CapEx of upstream project development is not a bottleneck if other constraints are addressed — principally by securing “bankable” offtake agreements for producers, enabling transparent contracting, and solving operational considerations for maritime buyers.  

We draw two interpretations from this work for vessel owners, operators, and others involved in the maritime supply chain:  

• Extend the planning horizon: Securing access to these low-emissions fuels depends on offtake agreements. If owners, operators, and others in the maritime value chain determine that bunkering these fuels is strategically sensible, they must investigate the feasibility and desirability of securing supply through long-term agreements. This may require exploring creative new financing structures to allow owners and operators to act as offtakers, or partnering with others in the same value chain or other sectors to do so.  

• Finance follows the market: Stakeholders reported that access to financing is not a major constraint if other challenges are resolved. This suggests that the starting point for upstream players can be working with and educating their potential maritime customers. Symmetrically, owners and operators may be best served by determining their low-emissions fuel needs accounting for regulatory costs. 

Building on these, we offer two strategic recommendations for stakeholders in this supply chain:  

• Start soon: The maritime supply chain needs to quickly develop long-term fuel strategies and sign bankable offtake agreements to secure access to low-emissions fuels. The compliance costs of using fossil fuels under FEUM and the IMO NZF will rise over time. Direct compliance with regulations will ultimately require securing fuels that are not available at scale today. Under EU regulations already in place, for example, the penalty costs of using a tonne of low sulfur fuel oil (LSFO) in 2030 will be an estimated 174 USD. By 2035, this will rise 131% to 402 USD if emissions are not abated by, for example, using low-emissions fuels.  

• Engage with public policy: Upstream and downstream firms should study the costs and benefits for low-emissions fuels and help to shape regulations and subsidy programs that determine them. Even with steep learning curves, there will be a long-lived cost gap between fossil and low-emissions fuels—fossil fuels are artificially cheap because they do not “internalize the externality” of the climate damage they cause. Regulations in shipping and other sectors can shift relative prices in favor of these fuels; government-backed incentive schemes and tools such as lower-interest rate lending can work alongside these regulations. (For example, we showed in earlier analysis that the Inflation Reduction Act and FEUM work together to make low-emissions fuels cost-effective for the maritime sector).[3]

While EU regulations (and the substantial increase in regulated fossil fuel costs they imply) are in place, the NZF is about to be adopted. In the latter half of 2025, we expect more clarity on whether, when, and to what extent low-emissions fuels will be economically viable for international shipping. This information should feed into long-term bunkering and fleet renewal strategies, along with other elements of the maritime value chain. Upstream and downstream market participants must closely track these regulatory developments.  

Data collection, analysis, and writing by Kei Kato (Sumitomo Corporation, seconded to MMMCZCS), Jenny Ruffell Smith (Swire Shipping, seconded to MMMCZCS), and Theodore Talbot (Head of Climate Finance & Economics, MMMCZCS).  

The team is grateful for external review and suggestions from Hitomi Komachi (A&O Shearman) and Dana Rodriguez (Lloyd’s Register Maritime Decarbonisation Hub). A further external reviewer asked to remain anonymous. This article does not represent the views of the external reviewers or their organizations.  

We are also grateful for review and comments from MMMCZCS staff: James Duncan, Frederik Lehn, Louise Brix-Hansen, Dr. Torben Norgaard, Nikolaj Enevoldsen, and Dr. Estela Vázquez Esmerode.  

Matilda Handsley-Davis and Jonathan Winch (both MMMCZCS) provided excellent editorial review.

* Stakeholder consultations in the interview process suggest that balance sheet financing is a very small segment of this nascent market.

** For a discussion of relevant offtake considerations in a related market – that of sustainable aviation fuel (SAF) – see Scaling Clean Technology Offtakes: A Corporate Playbook for Net Zero, World Economic Forum (WEF) white paper, May 2024. See also Project Finance. Graham Vinter, Gareth Price and David Lee (Sweet & Maxwell) for a textbook treatment of bankability and structuring.

*** Differences between these data and the production data shown in Figure 2 are because data coverage does not overlap.

**** The authors are grateful to reviewers from A&O Shearman for raising this point.