Natália Coelho: The International Maritime Organization's decarbonization mission may be a tough challenge. But one type of fuel is increasingly being seen as a possible pathway to achieving net-zero greenhouse gas emissions by 2050, the synthetic fuel. Hello everyone, my name is Natalia Coelho and I am a marine fuel reporter here at Argus.
Pamela Machado: And I am Pamela Machado, senior reporter at Argus covering hydrogen and derivative sector. This is another episode of Market Talks, Argus' media weekly podcast series on energy commodity markets in Brazil and around the world. In today's episode, Natalia and I will be discussing how these markets come together in the so-called synthetic fuels, or e-fuels, and how the market is viewing them as one of the potential solutions for decarbonizing the maritime transport sector.
NC: E-fuels, such as e-ammonia and e-methanol, are produced by separating the hydrogen molecule from water using electricity with little or no carbon emissions.
PM: These hydrogen molecules are then combined with carbon dioxide to form e-methanol or with nitrogen to form green ammonia. This results in fuels with zero or near zero greenhouse gas emissions. That is why they are considered among the cleanest fuels.
Additionally, they do not have to face the same feedstock restrictions as is the case with some biofuels.
NC: One thing to mention, Pamela, is that despite appearing to be a solution, few market participants are currently willing to bet on synthetic fuels, especially after the postponement of the vote on carbon pricing at the IMO. And without regulation, there is no clear incentive for market participants.
PM: The uncertainties are also related to the limited availability of these products, not only for maritime transport, but also for other sectors, not to mention the lack of port infrastructure currently available to store and distribute synthetic fuels. All of these increases the final cost of the product. And without regulation or some sort of incentive, it is difficult to convince ship owners to pay that price.
NC: The postponement of the IMO vote has increased these uncertainties. But before the October meeting, e-fuels producers appealed to country delegates to approve the pricing mechanism and give favorable treatment to synthetic fuels. The group includes major companies such as Moeve, Green North Energy and European Energy.
PM: Production projects targeting hydrogen and derivatives such as e-fuels need a regulatory push to materialize. Production costs are high, and consumers are still unwilling to pay more for green fuels. Hydrogen and e-fuels projects are also structurally complex.
They involve integrating new technologies into one single plant. That's why they require high capital investment. These projects need 10-year offtake agreements to secure finance.
And this is the biggest challenge in the market at the moment. Natalia, how did the marine fuels market react to the postponement of the IMO adoption vote?
NC: Well, Pamela, there was no consensus in the market reaction. One side spoke precisely about the scarcity of alternative fuels, which includes synthetic fuels, preventing wider adoptions. Some participants also mentioned existing regulations in Europe, such as the EU, which could lead to double compliance costs.
The other half of the market, which includes maritime organizations such as the International Chamber of Shipping, said it was disappointed with the postponement as the industry needs clear direction. Many pointed to the influence of the US President Donald Trump on the delay, given that he has been a critic of the mechanism since the beginning of his term.
PM: Well, even if it had been approved, the IMO's net zero framework would not have provided a strong incentive for e-fuels in the early years. That is because the carbon price would not have been high enough. According to estimates from Argus Consulting, it would have been around the mid-2030s that the use of e-fuels such as ammonia and methanol would begin to scale up.
How has demand for biofuels been?
NC: In the marine fuel market, biofuels have been one of the main choices because they are considered transitional fuels and also because no change to vessels are required to use them. For example, a vessel that runs on fuel oil or marine gas oil can also operate on biofuel without any change to the ship, but not on methanol or e-methanol. So that additional cost is to be factored in.
PM: The main current incentive for e-fuels is the European Maritime Policy, known as the FuelEU Maritime, as you said. This is a European regulatory framework that imposes high penalties on participants who fail to reduce emissions. The program also incentivizes e-fuels through the use of a multiplier, which means that each molecule of e-fuel used on a vessel has its GHG reduction multiplied by two.
NC: The use of synthetic fuels will also become mandatory on the FuelEU starting in 2034, when ship owners will need to use at least 2pc of e-fuels.
PM: Despite these setbacks in the market, maritime technology company Accelleron has assessed that existing hydrogen and e-fuels technologies are already sufficiently mature for use in maritime transport.
NC: And another strategy to encourage the use of e-fuels are the green shipping corridors, which are routes usually between ports, where ships are required to use zero or at least near zero emissions fuels. And depending on the strategy, ship owners may benefit from it with reduced port fees and even priority access when entering the ports. This is the case, for example, with the green corridor between Belgian Antwerp and Brazilian Açu port, where port fees will be discounted.
PM: Currently, there are 84 green corridor initiatives in the maritime sector around the world. This is according to the Global Maritime Forum. The EU is also trying to boost market development through bilateral auctions and subsidies.
Brussels recently launched the third round of the European Hydrogen Bank. This is the bloc's largest hydrogen promotion instrument. This round includes a budget of 300 million euros dedicated exclusively to the purchase of e-fuels in the maritime and aviation sectors.
NC: But despite these incentives, it seems we will still have to wait a few more years before synthetic fuels emerge as viable alternatives for decarbonization. Don't you think, Pamela?
PM: That is right. Policies supporting the use of synthetic fuels are expected to really drive market movement from 2030 onwards. Over the next few years, key themes will be regulatory clarity and project development.
In the meantime, you can follow more news on e-fuels, hydrogen and marine fuels across Argus Media's platforms.
NC: You can also find more episodes of our podcast on the Argus website.
PM: We'll be back soon with another episode of Market Talks. See you!
