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Biofuel demand outpaces supply, risking shortages

09 Jun, 2025
Biofuel demand outpaces supply, risking shortages



The global shipping industry’s drive toward net-zero carbon emissions is intensifying demand for biofuels, which can be used in existing ship engines and are seen as a practical, near-term solution for decarbonisation.

However, new analysis from Rystad Energy reveals that production capacity for key biofuels — including biodiesel and bio-liquefied natural gas (bio-LNG) — is lagging far behind the sector’s surging needs, raising concerns about the industry’s ability to meet tightening emissions standards.

In a scenario without supply constraints, global demand for biodiesel in shipping could surpass 140 million tonnes of fuel oil equivalent by 2028, yet even under ideal conditions, production is expected to peak at just 120 million tonnes.

When sustainability criteria are applied, focusing on cleaner, second-generation biofuels, available supply drops sharply to only 40 million tonnes.

Factoring in production risks, actual output, and competition from other sectors, the volume realistically available to shipping shrinks even further.

“Demand for biodiesel, if unrestricted, outstrips the total supply,” said Junlin Yu, Senior Data Analyst, Shipping at Rystad Energy.

“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 tonnes in fuel oil equivalent by 2028, the apparent surplus in supply is misleading.

“Over 84 per cent of global biomethane is already committed to electricity generation, with an additional 10 per cent allocated to road transport.

“This leaves only 6 per cent available for all other sectors, including maritime, making actual access far more limited than the numbers suggest.”

Biofuels are currently more cost-effective than traditional marine fuels, especially when they meet strict low-carbon standards and align with the International Maritime Organization’s Greenhouse Gas Fuel Intensity (GFI) standard.

Blending biofuels at 30 per cent or 50 per cent can help meet emission targets in the short term, while a full switch to 100 per cent low-emission biofuels offers the greatest long-term savings.

Bio-LNG, in particular, is emerging as a cheaper alternative to biodiesel, especially when supported by government subsidies.

“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,” added Yu.

“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.”

With future-facing fuels such as ammonia and methanol still facing high costs and infrastructure hurdles, many shipowners remain cautious, waiting for clearer market signals.

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